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Friday, Nov 28, 2025

Bank of England governor warns EU demands for City are ‘unrealistic’

Bank of England governor warns EU demands for City are ‘unrealistic’

Andrew Bailey uses Mansion House speech to back government’s hardline stance for next round of Brexit talks
The governor of the Bank of England has called EU demands for City banks to comply with Brussels regulations unacceptable, in a combative speech backing the government’s hardline stance in the next round of Brexit talks.

Andrew Bailey said the UK should refuse to allow Brussels to restrict how the UK industry develops and look instead to global financial regulators as the main rule makers.

Calling the EU insistence on an equivalence regime out of line with all other deals signed by Brussels, the central bank head lined up with Boris Johnson as the UK embarks on what are expected to be difficult talks over the next few months.

Speaking online at the annual Mansion House dinner to finance industry executives, Bailey said the EU had granted equivalence status – a mutual recognition of each side’s regulatory standards – to Canada, the US, Australia, Hong Kong and Brazil based on their adherence to international regulations, but was insisting that London also track the twists and turns of EU rules.

“The EU has argued it must better understand how the UK intends to amend or alter the rules going forwards,” he said.

“This is a standard that the EU holds no other country to and would, I suspect, 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.”

Bailey said the first interpretation was that the EU thought rules should never change, something that the governor said was “unrealistic, dangerous” and inconsistent with how the EU operated.

Instead, he favoured the interpretation that the EU would only grant equivalence status if the UK agreed to change its rules whenever the EU did. “But that is rule-taking, pure and simple. It is not acceptable when UK rules govern a system 10 times the size of the UK GDP and is not the test up to now to assess equivalence.”

During last year’s Brexit negotiations, the EU granted the UK’s financial services industry a six-month extension to the transition deal, which ended on 31 December.

City bosses are braced for ministers to reject a deal should the EU maintain its demand that the UK should not change its rules independently.

Bailey’s comments will bolster Johnson’s position in talks to seal a longer-term agreement, when the prime minister is expected to argue that Brussels is behaving unreasonably when it demands a commitment to amend City regulations in line with changes to EU rules.

Bailey said the UK should take a more global view of the City’s future and seek to be involved in global regulatory bodies. He said the central bank already provided the chairs for two of the four main regulatory bodies and this put the UK in a strong position to influence industry rules.

There was a message in Bailey’s speech for Brexiters who would prefer the UK to go it alone, with the governor warning that there would always need to be compromises to create a level playing field.

“It requires us to give up some control over our standards and rules, because the alternative of narrow domestic control is illusory – it would jeopardise achieving the very things we want, safe open markets, and likewise open economies. Above all, these bodies enable us to build the trust that enable our financial systems to stay open,” he said.

“But, we do not for a moment believe that we can maintain the arrangements we have without change. As the world around us changes, so too do we have to adapt how we achieve these public goods.

“Also, we do not participate in these global institutions with the intention to water them down, misguidedly because we think this would preserve some notion of our competitiveness as a nation. The UK could not be a global financial centre for long if we did.”

Bailey’s speech came as he found himself under pressure following a dispute over his handling of the London Capital & Finance (LC&F) collapse in his previous job as the main City regulator. Evidence he gave to MPs on Monday was questioned publicly the next day by the judge who headed an inquiry into LC&F, Dame Elizabeth Gloster.
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