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January 10, 2020

Why the UK is no longer seeking access to the EU’s financial market

Mark Carney’s valedictory interview in the Financial Times is an example of the extent to which the Brexit debate has now moved on. The Bank of England actively campaigned for Remain, and contributed to the Project Fear hysteria of 2016. Now Carney says the UK should not seek regulatory alignment with the EU. In fact, he went so far as urging the UK government not to compromise on financial regulatory alignment in order to secure preferential trade terms. 

We are sure that his successor, Andrew Bailey, will take the same view on this matter. For starters, Bailey’s background is in financial regulation. And we know that Brexit played a significant role in the selection process for the new governor, and led to qualified candidates being struck from the list. Bailey would not have been appointed unless he supported the government’s Brexit stance. 

Carney’s core argument is that you cannot run a global financial centre and simultaneously be a rule-taker from others. The same argument will apply to other sectors. For example, we don’t believe that the UK can develop a successful artificial intelligence industry if it is subject to EU state aid and data protection rules. Once you think through the implications of rule-taking, you arrive at similar conclusions as Carney. This is why we are now expecting a relatively shallow trade deal, not by accident but by design.

We agree with Carney that climate change constitutes what he calls a commercial opportunity for financial companies, and on his prediction that the City of London would benefit from the transition to a low-carbon economy to replace the lost eurozone-related business.

Oh, and by the way: the legislation to implement the EU withdrawal bill made its final passage in the House of Commons yesterday. It would have been hard to image not too long ago that this seminal moment would go largely unnoticed. But here we are.

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