WHAT JUST HAPPENED?
The woes of Brexit continues as businesses seek to relocate UK jobs and operation to the EU. [1] To combat this the Bank of England is “demanding that lenders seek approval” from the Bank prior to relocation.[2] Following concerns that EU regulators are asking more and more firms to move back to the continent.
WHAT DOES THIS MEAN?
London is seeking to keep its title of leading financial hub and the Bank of England is doing all it can to protect the City’s reputation. Furthermore, in the Prime Ministers address announcing the completion of a deal with the EU, he was keen to highlight the post-Brexit future has a deep foundation in the City and financial service sector.
There has been continued concern that EU counterparts are looking to poach the prestigious financial service providers from London. So far over “£1.3trillion of client assets” have been relocated to the EU. [3] The fear from the Bank of England and government officials is the relocation of UK based human capital in order to assist in the asset transition and future operations. So far it is has been estimated that 7,600 jobs have been moved to the EU so far. [4]
A further concern raised by Andrew Bailey is that any notion of EU officials forcing the relocation of euro derivatives would “represent a serious escalation” of EU-UK relations.[5] London currently dominates the market for the clearing of euro derivatives. Clearing of euro derivatives is “products bought by professional investors to protect against, or speculate on, movements in financial markets; including the price of shares, bonds, interest rates and currencies.” [6] The London market is the biggest of its kind and there is nothing of the size in the EU and therefore the UK market should not be poached.
WHAT DOES THIS MEAN FOR THE LEGAL SECTOR?
Currently, the warnings of the Bank of England have not produced any concrete changes or agreements. However, the statement risks inflaming tensions between the UK and EU during the ongoing negotiations over the post-Brexit financial service relationship.[7] The negotiations have reached the stage where discussions on regulatory co-operation are at the forefront. The crucial point of negotiation will help determine the future relationship between the parties with the end goal being the granting of ‘equivalence’ to UK financial rules.
The granting of equivalence would ensure that the EU acknowledges the “UK’s financial rules are equivalent to its own and visa versa”.[8] This measure would restore greater confidence in the UK financial service sector as it gains a better understanding of the future relationship between th EU and the UK. As there is nothing economics hate more than uncertainty.
Furthermore, there are have been concerns on the growing politicisation of the Bank of England. The Bank of England has the function of maintaining monetary stability, overseeing the financial stability of the UK, acting as the custodian of the UK gold reserves and acting as the lender of last resort. The growing economic concerns following the departure of the UK from the EU has led to the Bank of England stretching its role as the central bank. Due to Brexit the Bank of England has been charged with developing contingency plans on the potential economic fallout. The plans are centred around inflationary pressure from the rapid depreciation in the value of the UK pound and reduction of interest rates to stabilise a weakened economy. However, the Bank of England has been “criticised as regulatory overreach by international bankers”. [9]
If members of the finance community continue to feel that the Bank of England is overstepping its role in the UK economy, then there may be legal action against the Bank. If so, then the case may likely be brought under the Bank of England Act 1998 which sets out the statutory limits of the Bank.
Written by Meg Hornsby
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REFERENCES:
[1] Stephen Morris and Caroline Binham, ‘Bank of England clamps down on Brexit driven EU relocations’ (Financial Times, 29 March 2021) https://www.ft.com/content/ba285268-e4ce-42dd-9118-bba24155664c accessed on 26 April 2021
[2] Ibid.
[3] TruePublica, ‘Panic as Bank of England clamps down on Brexit driven EU relocations’ (Financial Times, 30 March 2021)
[4]
[5] Richard Partington, ‘Bank of England to ‘resist firmly’ EU raid on London, warns governor’ (The Guardian, 24 February 2021) <https://www.theguardian.com/business/2021/feb/24/bank-of-england-to-resist-firmly-eu-raid-on-london-warns-governor>accessed 27 April 2021
[6] Ibid.
[7] Stephen Morris and Caroline Binham, ‘Bank of England clamps down on Brexit driven EU relocations’ (Financial Times, 29 March 2021) https://www.ft.com/content/ba285268-e4ce-42dd-9118-bba24155664c accessed on 26 April 2021
[8] Ibid.
[9} Jonathan Powell, ‘BoE clamps down on EU relocations’ (China Daily, 30 March 2021) http://global.chinadaily.com.cn/a/202103/30/WS60628295a31024ad0bab271c.html accessed on 2 May 2021
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.