On 10 February 2021, the Bank of England (BoE) published a speech by Andrew Bailey (Governor, BoE) entitled The case for an open financial system.

Key points in the speech include:

  • The post-Brexit equivalence process between the UK and EU has not been straightforward. There are two distinct processes – one for the UK to recognise the EU as equivalent to the UK, and one for vice versa. The UK has granted equivalence to the EU in some areas, but the EU has not done likewise to the UK.
  • In a few areas – involving central clearing and settlement – there has been agreement by the EU to extend temporary equivalence to the UK, recognising, clear risks to financial stability that would have arisen had this not been done.
  • It would be reasonable to think that a common framework of global standards combined with the common basis of the rules – since the UK transposed EU rules from the outset – would be enough to base equivalence on global standards. Less than this was enough when Canada, the US, Australia, Hong Kong and Brazil were all deemed equivalent. The EU has recently made the US SEC equivalent for central counterparties (CCPs), subject to certain conditions. These conditions are already met by UK CCPs as they are a legal requirement in the onshored legislation, but equivalence beyond the temporary extension remains uncertain.
  • The EU has argued it must better understand how the UK intends to amend or alter the rules going forwards. This is a standard that the EU holds no other country to and would, Mr Bailey suspects, not agree to be held to itself. It is hard to see beyond one of two ways of interpreting this statement, neither of which stands up to much scrutiny.
  • An open world economy supported by an open financial system that respects the public interest objective of financial stability will bring the greatest benefits all round. It needs to be supported by effective institutions and strong international standards. But this must be a global, not a regional, regime to be effective.

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