Here we go! Bank of England prepares first clear break from Brussels – EU rules torn apart

Brexit: Johnson says EU equivalence is ‘not sensible’ for UK

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Regulators have outlined proposals to diverge from the European Union’s rules regarding how firms’ capital levels are measured. The European Banking Authority made the decision to enable lenders to count investments in software towards core capital levels. As of last year, those transactions could be added towards loss-absorbent capital – an international standard intended to ensure banks have enough equity and manageable debt.

Following a meeting on Friday, the Bank of England (BoE) Prudential Regulation Authority said it found “no credible evidence that software assets can absorb losses effectively in stress”.

BoE governor Andrew Bailey suggested the UK would move away from the existing rules during a speech last Wednesday.

He insisted the current EU policy gave a “false picture of a bank’s loss-absorbing capacity”.

A source told the Financial Times: “It is staggeringly improbable when a bank gets into difficulty that those investments will have a realisable value.

“The banks were lobbying them on this, arguing they needed to be liberated to invest in IT, defend themselves from fintechs and compete with big tech and American banks.

“It convinced the European political machine, but not us.”

The proposals would make the UK’s banking rules one of the toughest in the world.

It could also have a knock-on effect on the amount British banks can pay out in dividends.

The shift away from EU rules comes amid a row over wider financial regulations between the UK and Brussels.

The European Union has refused to grant equivalence to the City of London following the end of the Brexit transition period in January.

The lack of an agreement for City traders means US banks wanting to buy European stocks are would no longer be able to trade via London.

An estimated £5.7billion worth of deals shifted overnight to the EU – including additional fees.

Last week, Amsterdam overtook London as the largest financial trading centre.

Mr Bailey warned the UK would not be forced to follow EU rules to the letter and that sensible agreements over what constitutes “equivalence” were needed.

Speaking at an annual Mansion House speech to the City on Wednesday, the BoE chief said: “The EU has argued it must better understand how the UK intends to amend or alter the rules going forwards.

“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.”


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He added: “I’m afraid a world in which the EU dictates and determines which rules and standards we have in the UK isn’t going to work.”

The UK and Brussels are currently working towards a March deadline to finalise an agreement.

EU Financial Services Commissioner Mairead McGuinness, said: “While the issue of equivalence is an area which we will discuss with the United Kingdom progressively, taking into account the UK’s regulatory intentions on a case by case basis, there cannot be equivalence and wide divergence.”

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