Treasury Committee's Morgan Pushes BOE on Brexit Transition View

  • PRA Chief Woods asked to share assessment of banks’ readiness
  • Getting transition right is crucial for London, Morgan says

Nicky Morgan. Photographer: Daniel Leal-Olivas/AFP via Getty Images

Nicky Morgan, chair of the U.K. Parliament’s Treasury Committee, asked Bank of England Deputy Governor Sam Woods to weigh in on the sort of transition plan that will be needed as the U.K. withdraws from the European Union.

Morgan asked Woods, head of the BOE’s Prudential Regulation Authority, about the desirability and design of a transition period, including a “bridging period” to cover the time between the end of exit negotiations and the start of the U.K.’s new economic relationship with the bloc.

Chancellor of the Exchequer Philip Hammond said last week that there was consensus in the government that a smooth departure would take time, though he made clear that any transition should end by the time of the next general election in 2022. That vision of harmony was shattered almost immediately, however, as Trade Secretary Liam Fox used a Sunday Times interview to pour cold water on Hammond’s claims.

“Getting these arrangements right will be crucial for ensuring that the City retains its pre-eminence as a global financial center, and to protect the economy and jobs as the U.K. leaves the EU,” Morgan, a lawmaker from the governing Conservative party, said in a statement.

Speaking to the Treasury Committee in December 2016, when the panel was led by Andrew Tyrie, Woods said he wanted a transition deal in place by the end of 2017. This would give firms clarity as they adjust to Brexit, as well as giving supervisors and banks more time to “agree on the way through this that makes the most sense from a safety and soundness perspective.”

‘Trigger Points’

Morgan asked Woods to take into account the results of his inquiry into firms’ readiness for Brexit. The PRA instructed banks in April to explain how they plan to deal with Brexit, with special focus on the possibility that divorce, trade and transition agreements are not in place.

“In preparation for the formation of the Treasury Committee, which may wish to consider the implications of exiting the EU for financial services, I would be grateful for some details on the outcome of this exercise,” Morgan wrote in her July 24 letter to Woods. Morgan said she would publish Woods’s response, which she requested by Aug. 2.

A PRA spokesman said Woods would reply to Morgan by the deadline.

The Treasury Committee examines the spending, administration and policies of the Bank of England, among other public institutions. Morgan was chosen in July to lead the committee; the remaining members will be announced later.

Morgan, a former minister for women and equalities, asked Woods if firms have identified “common trigger points” that would precipitate taking action “as the risk of a no-deal scenario rises.” She also asked how such plans differ for banks and insurance companies, as well as for banks headquartered in the U.K. as opposed to units of foreign firms.

The Treasury Committee chair also asked if the PRA has the capacity to take over the authorization and supervision of all firms currently doing business in the U.K. under so-called passporting rules.

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