LONDON (Reuters) - A panel of global regulators could police a new system that allowed Britain and the European Union to use each other’s financial rules after Brexit without disrupting markets, an advisory group said on Monday.
Bank of England Governor Mark Carney called last week for such a “mutual recognition” system, and on Monday the International Regulatory Strategy Group (IRSG) fleshed out how it could work in practice.
The IRSG, backed by TheCityUK, which promotes Britain as a financial center, and the City of London Corporation, home to the “Square Mile” financial district, said a dispute resolution model would be needed as the EU and UK regulatory systems diverge over time.
The IRSG set out several options, some currently used in free trade agreements, and some that would have to be started from scratch.
“These disputes could be referred to a new independent panel, made up of global standards setters, such as the Financial Stability Board or International Organization of Securities Commissions, or a new panel of experts predominantly from outside the UK and EU,” the report said.
Britain has triggered formal divorce talks with the EU, and it is unclear what the trading terms for cross-border financial services will be from 2019.
Reuters has already reported that the IRSG was proposing a mutual recognition model to avoid major disruption of cross-border customer links.
But it is unclear if the EU would accept such a regime, with some of its policymakers wanting an existing, more cumbersome system of EU market access - which banks in Britain want to avoid using - toughened up.
Frankfurt, Paris, Luxembourg and Madrid also hope that financial business will relocate to them after Brexit.
The IRSG said the “criteria for access” to markets should be based on global rules agreed by the FSB, IOSCO or the Basel Committee, which sets bank capital requirements.
“A joint UK-EU committee or forum could be established to make sure that regulation and principles of supervision are monitored as they evolve over time,” the IRSG said.
Mutual recognition has never been tried on the scale being looked at by Britain and could take years to agree.
“There are no easy solutions, here but if the goal is to avoid fragmentation and maintain deep and liquid financial markets which benefit customers, then the UK and the EU will need to work together constructively to strike the right deal,” IRSG Chairman Mark Hoban said.
Reporting by Huw Jones; editing by Susan Thomas