On 11 February 2020, the Bank of England (BoE) published a speech given by Sir Jon Cunliffe (BoE Deputy Governor for Financial Stability) entitled Governance of Financial Globalisation.

In his speech, Sir Jon sets out, among other things, the governance of EU-UK financial interconnectedness and how both parties will need to figure out new ways to maintain the deep financial connections between them. For Sir Jon, the issue is not the starting point but how the regulatory frameworks and supervisory practices and cooperation will develop over the future.

As a third country, the UK will no longer be involved in the development of EU legislation and regulation. Divergence may occur where new challenges emerge, EU regulation no longer needs to cater for the greater complexity and scope of risk and activity in the UK, and the complex processes and structures needed to manage the regulatory framework within the EU are no longer needed in the UK.

For the future relationship to work, Sir Jon suggests the following considerations:

  • the UK cannot outsource regulation and supervision to another jurisdiction. The relationship should be built on the assessment of similar outcomes, in a non-discriminatory way, paying due respect to home country regimes. The relationship cannot be built on textual alignment of both EU and UK regulatory frameworks;
  • future regulatory and supervisory arrangements between the EU and the UK need to be stable and built on good faith. Sir Jon acknowledges that over time supervisory and regulatory arrangements will change and it will be necessary for one side to conclude that new challenges should be handled in a different way. In any event, additional controls and restrictions on cross-border activity may be needed. He argues that such decisions need to be clear and transparent, grounded in evidence and applied within agreed procedures to ensure that their implementation does not itself become a source of risk; and
  • both sides need to have deep supervisory cooperation in all areas of cross-border financial activity including banking, insurance, markets and markets infrastructure to ensure that the importer of risks has information and influence. Sir Jon states that this need will arise more generally at an international level in the future to manage technology driven changes in cross-border payments systems. Arrangements for shared supervision need to be worked out carefully, subject to agreed procedures and recognise the primacy of the lead supervisor.