Bank of England may roll back post-crisis financial reforms

The Bank of England has signalled its willingness to roll back post-crisis reforms if it finds that they have “unintended consequences” to the financial system.

Victoria Saporta, executive director for prudential policy at the BoE, said on Wednesday that the central bank had begun to evaluate how the wave of reforms put in place internationally and domestically meshes, ten years after the onset of the worst financial crisis in a generation.

“Some of the reforms were put in place quickly. They were also developed concurrently. Therefore it would be flabbergasting if the reforms did not have some unintended consequences,” she said in a speech in London. “Plus, the financial system will evolve over time. New products, market practices and especially technologies are going to emerge; some of these might create new risks that were unforeseen when the post-crisis reforms were developed.”

Negotiations

Her comments come as the United States is beginning to roll back some of the reforms it put in place since the crisis. Some financiers and politicians in the UK are also hoping that Brexit might present an opportunity to discard elements of EU regulation, but how far the UK might move away from Brussels is still unclear while Brexit negotiations are ongoing.

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Others in the City argue that it is important to not diverge much from EU rules because retaining access to the single market could hang on whether the bloc deems the UK to have an “equivalent” set of rules.

The BoE and the Financial Conduct Authority has insisted that there will be no “bonfire of regulations” either because of Brexit or because of the US approach, but governor of the BoE Mark Carney has offered a menu of EU regulations that the UK might scrap after it leaves the EU, from a cap on banker bonuses to elements of insurance regulations called Solvency II.

Bonuses

Still, Brussels’ proposals on accessing the bloc include demands to adhere to the bonus cap – which the UK and Brussels have long fought over, and which limits bonuses generally to 100 per cent of fixed pay. Meanwhile, the BoE’s Prudential Regulation Authority said last month that it would not alter an element of Solvency II for now because of ongoing uncertainty over Brexit.

Meanwhile, the EU itself, as well as the international Financial Stability Board, which Mr Carney chairs, have signalled an end to the frenzied policymaking that was sparked by the financial crisis a decade ago. They have all said they will review the regulations made since then.

Ms Saporta said on Wednesday the BoE would always have the original objectives of rules in mind, and its review would be “evidence-led”, looking beyond the banking sector because “unintended consequences of bank regulation might be felt not in the banking sector but in financial markets, financial infrastructure, and other parts of the financial system.”

Copyright The Financial Times Limited 2018