Phillip Lane warns of London hit from hard Brexit

There is likely to be a significant flight of financial activity out of Britain if companies are no longer regulated on equivalent terms to those in the EU after Brexit, the central bank governor Philip Lane has told a gathering in London.

Many of the world’s major banks have European headquarters in Britain, but they face significant uncertainty over the country’s future relationship with the EU after its vote to leave the 28-member bloc in June.

Their long-term prospects hinge on what happens to Britain’s access to the EU’s “passporting” arrangement.

“If the UK-EU negotiations deliver an agreement that effectively preserves the single passport for UK-resident entities selling into the EU, the net impact on the structure of the European financial system might be quite minor,” Mr Lane said at a Reuters Newsmaker event.

“However, in scenarios in which UK-resident firms are no longer treated as equivalent to EU firms for regulatory purposes, it is likely that significant migration of financial activity from the UK to the EU will occur.”

Cities around Europe are already vying for the potential new business, including those in Ireland, Germany, France, the Netherlands, and Luxembourg.

Mr Lane has said his office has seen a spike in inquiries from financial services companies since the Brexit vote.

But he cautioned it is unlikely that activity will cluster in a single eurozone location because none offers a close substitute to London.

— Reuters