A transitional arrangement for the UK’s departure from the EU would pose fewer risks to financial stability and cause less complexity for the City firms impacted by Brexit, a deputy governor of the Bank of England has said.
Speaking to the Treasury select committee, Sam Woods indicated details of that arrangement would be needed within nine months of article 50 being triggered. That formal process of leaving the EU is expected to be started in March.
Earlier this week,the chancellor, Philip Hammond, told the committee that the government would probably seek a transitional deal in order to avoid disruption that could risk financial stability.
Asked about this on Wednesday, Woods said: “I think it would reduce the risks. It seems to be just as true for the rest of the EU … as it is for the UK. It’s in the interests of all parties to have a reasonable implementation phase.
“It’s a question of the sooner the better. I wouldn’t want to be sat here in a year’s time a transition not having been agreed.”
He told MPs that the Bank of England was being kept informed of contingency arrangements being drawn up by City firms which were most likely to be badly affected by not being able to continue doing business in continental Europe in the same way as now. Firms could roll these out in a “small number of months”, said Woods.
A transitional agreement would be beneficial for the firms which might be affected, particularly what he described as trading banks and those operating in the wholesale markets.
“Without exception those firms who are affected directly would all like to see a transition period. The smoother the adjustment ... the lower are likely to be risks to financial stability and safety and soundness,” Woods told the committee.
He also referred to his time as part of the team which devised the banking reforms outlined by Sir John Vickers in 2011, and which require banks to ringfence their high street operations from their investment banks by 2019.
“The harder the border ... the more complex are likely to be the structures the firms adopt … that would be a step backwards. The more complex the firm the more difficult it is to manage, the more difficult it is to supervise and the more difficult it is to resolve,” said Woods.
