Bank of England governor Mark Carney has warned the global financial system is at a “fork in the road” going into the Brexit talks.
In a major speech on the impact of Brexit on the City of London, Mr Carney said the negotiations would influence how banks are regulated.
The UK and European Union were “ideally positioned” to strike a trade deal on financial regulation, he said.
But he warned against a “bonfire of regulation” if a deal was not reached.
Prime Minister Theresa May triggered Article 50 last week, starting the formal talks on the UK’s withdrawal from the EU.
The Bank has written to the heads of banks and other financial services firms to ensure they have contingency plans dealing with different outcomes from Brexit.
“The outcome of the Brexit negotiations could prove highly influential in determining which path the global financial system takes,” Mr Carney said in a speech at Thomson Reuters in Canary Wharf.
He warned against countries taking the “low road” where they turned inwards, cut back on regulations and did not work with other regulators.
This would lead to fewer jobs, lower growth and higher domestic risks, he said.
Major US and European banks are based in London, offering their services throughout the EU under a process known as “passporting”.
Mr Carney underlined the importance of the City of London to the EU, saying it was “Europe’s investment banker” and a “global public good”.
He said the two sides were “ideally positioned” to strike a deal on UK-based banks offering services into the EU and vice versa.
“We start from a position where the high road is both readily attainable and highly desirable for all involved.
“The UK and the rest of the EU have exactly the same rules governing our systems,” Mr Carney said.
But he also recognised that an agreement on financial services was “one sliver – albeit an important sliver” of the Brexit negotiations.
“Given our responsibilities to promote financial stability, the Bank – like its counterparts on the continent – must plan, purely as a precaution, for all eventualities,” he says.
As a result, it has sent letters to UK firms who offer services in the EU to ensure they have “contingency plans for the full range of possible scenarios”.
The vast majority of firms in the City have already put in place such back-up plans, he added.
Goldman Sachs, HSBC and UBS are among the banks that have said they will move some jobs to other European cities as a result of Brexit.
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