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Mark Carney: City of London will lose business if UK exits EU

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The City of London will “without question” face a loss of business as a result of the UK leaving the European Union, says Bank of England governor Mark Carney.

Speaking to the Treasury committee about the impact of the EU referendum, Carney said if the UK were to leave the EU and did not get a mutual recognition treaty to replace the current passporting regime then companies would exit the UK.

He said a number of company chiefs have spoken both publicly and privately about their contingency planning for a Brexit scenario, particularly if the UK had a ‘third-country’ setup with the European Union, which would not give them passporting rules.

Carney added the cost of doing business for financial services firms would also increase as a result of the UK leaving the EU.

The cost of compliance for firms with a presence outside the UK would rise as a result of complying with two regimes, he said.

Carney added: “If a firm is purely domestically focused one could expect a scenario where compliance costs could go down. If a firm has an element of activity that extends from the UK to another EU country then compliance costs would be expected to go up, as they will have to fulfil compliance responsibilities in both jurisdictions.”

If passporting abilities were lost there would be another cost for financial services firms of setting up subsidiaries in the EU, Carney said.

The ability for firms to passport into Europe is one factor that makes basing a financial services business in the UK attractive, he added.

“There is a reason why a substantial proportion, more global banks, more internationally active banks, are headquartered in London than any other European country or all other European countries combined.

“That’s partly because of the cluster of expertise that is here but also, in many cases, and I have had numerous conversations with CEOs who affirm this, that is because of the passporting ability of this economy in terms of the activities.”

However, speaking at the start of the session, Carney insisted nothing said in the meeting “should be interpreted as making any recommendation” on which way to vote.

Also speaking to the committee, deputy governor of the Bank of England John Cunliffe said it would be a “very big negotiating ask” to leave the EU and still be part of the single market and have an influence on the rules and regulation made.

He added: “A negotiation like this has never happened before, we are in unprecedented territory. I would think once we are outside of the EU and if we wanted to remain in the single market for financial services it would be a very big negotiating ask to also have the influence on setting rules we have at the moment.”

Speaking about the additional liquidity measures announced by the Bank of England today surrounding the EU referendum vote, Cunliffe said the Bank has learnt from the Scottish referendum that such announcements need to be made early.

He said: “The lesson that we learned in the Scotland case is that if you leave it until quite late to decide whether to put these things in it can be difficult to do it and it can create instability by the announcement itself.

“There is uncertainty around what happens if the UK leaves the EU and we know there will be a period of uncertainty that will extend for some time. It is perfectly possible that people will want to protect themselves form possible downsides and we could see moves in currency rates and in risky assets as people try to work out what the outcome of the process would be.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Frankfurt and even Paris are salivating at the prospect. If you think this is just rumour or ‘Project Fear’ go over and talk to a few people. Wake up and smell the (continental) coffee.

    According to recent research much of the UK car assembly plants will disappear as well. Belgium and Spain are rubbing their hands!

    You may have seen previous posts quoting concrete statistics. But in essence the Brexit crew are indulging in wishful thinking (yes wouldn’t it be nice) but are not providing concrete figures (no guesswork please) to back up their assertions. As I have said previously projections are pretty worthless ( yes, even the ones at the start of this post), the only thing you can rely on are the figures of here and now produced by unimpeachable sources. OECD, IMF.HMRC, DWP etc.

    So Brexiters – please show your hand.

    The EU has only 7% of the world population, but has 26% of global GDP and 32% of global exports. Is this worth risking? (DataStream & Population Reference Bureau).
    Germany finds no problems trading with the rest of the world and indeed sells more to our Commonwealth countries than we do. In 1942 we exported about 40% of our total exports to the Commonwealth; by 2011 this had shrunk to less than 10% (UK Parliament figures). Since 1990 no Commonwealth country has appeared in the top 10 of export destinations. We export over 50% to the EU. The UK is Germany’s 5th largest import market. (Economist).

    You think all this will continue as before if we quit. As the Yanks say – you may be quitters, but many of us are not.

  2. Julian Stevens 9th March 2016 at 1:49 pm

    However did we manage before becoming voluntarily ensnared in the EU? Pretty well, I think many people would say.

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