BoE's Andrew Bailey: Brexit cost Britain up to 7,000 financial services jobs

Bank of England chief hails EU exit process as a case of ‘so far, so good’

A pedestrian walks near the Bank of England in the City of London. About $6bn in European share trading left the City of London for the continent this week, following Britain's exit from the EU. AFP

Britain lost up to 7,000 financial services jobs because of its exit from the European Union, according to Bank of England governor Andrew Bailey.

Mr Bailey said the job losses of between 5,000 and 7,000 were “substantially less” than the “sorts of numbers that were being talked about” after the Brexit referendum in 2016.

"That of course is the day one thing, but it doesn't tell us what it might be eventually,” Mr Bailey told parliament's Treasury Committee virtual meeting on financial stability in the run-up to Brexit.

Mr Bailey said the exit process since the transition period ended on December 31 has been “so far, so good” with financial stability risks mostly mitigated.

“A certain amount of business is having to migrate to the European Union,” he said. “Those transitions have broadly happened as far as we can see.”

However, he criticised the EU for its approach as the UK seeks equivalence – an arrangement governing cross-border financial services – describing the bloc’s desire for more information from Britain is “problematic".

The EU trade deal, which came into effect on January 1, did not cover financial services, although an extension was applied allowing companies in the sector to use platforms for swap trading until March.

The EU wants to reduce reliance on the City of London for financial services and for more euro-based trading in the bloc's financial centres, such as Frankfurt.

This could divide Europe's stock, bond and derivatives markets into two trading pools, raising concerns that investors would see less competitive prices.

About $6 billion in European share trading left the City of London for the continent this week in the first tangible sign of Brexit's effects on Britain's financial services sector.

Banks and asset managers warned that share trading was unlikely to return with Gianluca Minieri, deputy global head of trading at fund manager Amundi, telling the Financial Times it was “a stunning own goal for the UK. And this is only the beginning.” More volume would move to where investors could get better prices and liquidity, he said.

Mr Bailey acknowledged there have been "big numbers" in terms of the migration of share trading, and while no disruptions have been seen so far, it is leading to a fragmentation of markets where investors will "get less good prices".

He said equivalence should be based on Britain having financial regulation that achieves similar outcomes to those in the EU, rather than following it to the letter.

The EU's broader approach to financial services trade with Britain appeared focused on boosting some less competitive financial businesses in the eurozone, rather than seeking the best value financial services for EU businesses, he said.

Mr Bailey said he failed to see why people would want to close themselves off from open markets. “But the situation we find ourselves in is that the EU has said that it wants more information from the UK on what its future intentions are on regulation," he said.

"Now I think that's quite problematic, frankly, in terms of equivalence."

He said it was unrealistic for British rules to be set in stone or move in step with the EU.

Mr Bailey added that he did not want equivalence at any price, and that an end-of-March deadline for talks with the EU on the matter was reasonable.

He said Britain should not become a "taker" of EU rules to ensure better access to the bloc's market after Brexit.

"If the price of this is too high then we can't just go for it whatever," Mr Bailey said. "I strongly recommend that we don't become a rule-taker. If the price of that is no equivalence... then I am afraid that will follow. That is where it goes to."

Mr Bailey said it was too early to tell how the third lockdown will affect consumer behaviour in the UK, however, he said there was evidence last year that people do adapt in terms of behaviour to the crisis.

"The downside in the fourth quarter was not that great but that does not tell us what is going to happen," he said. "People do adapt in terms of behaviour to the crisis and that tends to have a positive sign relative to expectations."

The committee session was plagued with technical complications with Mr Bailey disappearing completely at one point mid-answer, and other attendees forgetting to mute their microphones while making personal calls.