21st June 2017

Carney’s crystal ball – what we learned from the Governor’s Mansion House speech

Written by Sam Mannion, Policy Advisor, Capital Markets

Chancellor Philip Hammond and Governor of the Bank of England Mark Carney both spoke at Mansion House yesterday morning, setting out the key issues for the UK economy and financial services.

But how much did it tell us about the outlook for the industry and its regulators?

Almost a quarter of Carney’s speech was dedicated to the knotty issue of Euro clearing.  The Governor reiterated concerns shared widely across the City that relocation would negate many of these benefits of post-crisis reform designed to improve risk management and systemic resilience through the pooling of liquidity, netting and trade compression and enhanced transparency. In particular, forced relocation based solely on the denomination of transactions cleared would fragment liquidity, leading  to more expensive execution and clearing costs that would adversely impact European financial institutions and end users.

Dig a little deeper, and he also set out a possible blueprint for international regulatory cooperation that would see the UK, US and EU move closer together, at a time when they appear to be drifting apart.

He set out a clear case for supporting “deep cooperation between jurisdictions and authorities who defer to each other’s regimes where they meet international standards and deliver similar outcomes”.

A Fine Balance – speech by Bank of England Governor Mark Carney:

“Coming to an innovative, cooperative and reciprocal agreement on central clearing would promote competitive financing in the euro area and maintain the resilience of the UK and global financial systems. More fundamentally, it would be an early milestone in the broader rebalancing of the UK, European and global economies”.

That’s an aspiration that is shared across the industry. At a time of great uncertainty and change, clear and consistent regulatory oversight  can only benefit the sector.

The Governor’s vision of the future is one where regulators work together. I’d add to that by calling for regulators to work closely with industry to ensure the future regulatory framework creates markets that work for their end users.