Bank of England Governor Mark Carney said April 7 that banks must prepare for "the full range of possible scenarios" around the U.K.'s exit from the European Union and told them to submit contingency plans to the Prudential Regulation Authority by July.
Bank of England Governor Mark Carney.
Source: Associated Press
In a speech in London on April 7, Carney said the PRA was writing to all firms with cross-border activities between the U.K. and the EU asking for post-Brexit contingency plans by July 14.
"The main purpose of this letter is to ensure that all firms are making, and stand ready to execute in good time should the need arise, contingency plans for the full range of possible scenarios," he said.
Those scenarios include a "hard Brexit" where the U.K. leaves the bloc in two years' time without a new trade deal with the EU in place, which U.K. executives have said would lead to a "cliff edge" for the financial services sector as U.K.-EU trade returns to World Trade Organization terms.
Banks that base their European operations in London — which includes all the major U.S. banks — are allowed to sell services across the continent tariff-free via the EU's "passporting" rules, which leading City figures had hoped to maintain under any transitional agreement for Brexit.
However, EU negotiators effectively dismiss the idea of any such bridge deal for the financial sector when setting out their terms March 31.
Carney went on to say that how the Brexit negotiations conclude will be a "litmus test for responsible financial globalization."
He said: "The U.K. and EU have the potential to create the template for trade in financial services — one that leverages the tremendous progress that has been made in recent years building resilience and cooperation."
The global financial system was at a "fork in the road," he said, where taking the "high road" would mean maintaining global cooperation on financial regulation put in place after the global financial crisis, and the "low road" would mean "trust and cooperation diminish, fragmentation hardens, capital flows are disrupted and trade and innovation are curtailed."