Carney Warns of Risks for Nations Eyeing London’s Trading Crown

  • Bank of England Governor warns of potential ‘black-box risks’
  • Carney says may take four years to move derivatives operations

Mark Carney, governor of the Bank of England.

Photographer: Simon Dawson/Bloomberg

Bank of England Governor Mark Carney warned of “black-box risks” for countries offering banks an expedited way to relocate derivatives-trading operations following Brexit, saying the process can take up to four years for a single lender to undertake.

“If it is done conveniently with workarounds, then one is taking black-box risks in the jurisdiction that accepts the workaround,” Carney told reporters at a briefing in London on Thursday. “There is huge operational risk involved in that, there is huge financial risk involved in that. It’s not something you do overnight.”

Global lenders are making plans to relocate some operations from the City of London to rival financial centers elsewhere in the European Union to mitigate the impact from Brexit, considering locations from Frankfurt to Dublin, Paris and Madrid. Bank of America Corp.’s president for Europe, Alex Wilmot-Sitwell, has likened shifting derivatives trading to moving nuclear waste in a process fraught with risk.

Although some European lawmakers may try to encourage banks to relocate business, Carney said the U.K. was the “one jurisdiction to have capacity” for complex derivatives trading activities. “The capacity is here; the people are here; the collateral is here; the expertise and supervisory ability is here; clearing is here,” he said.

While Britain’s dominance as a trading hub for over-the-counter interest rate derivatives has slipped in the past three years, the country still far outstrips other European nations and accounts for about 39 percent of the global market, or about $1.2 trillion in average daily trading volume. About $2.4 trillion of foreign exchange transactions take place each day in the U.K., making the country the single largest center with 37 percent of global volume, according to data from the Bank of England.

Major banks can take as many as four years to reorganize operations in a process that involves moving people, capital, trading books and collateral, Carney said.

The endeavor is “highly complex, highly interrelated and needs to be continuously supervised,” he said.

— With assistance by Lucy Meakin

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