Andrew Bailey, named on Friday as the next governor of the Bank of England, has signaled a readiness to diverge from EU regulations after Brexit.
Bailey will be one of the most influential policymakers in the country when he takes office next March 16 for a period of eight years — exceeding the mandate of elected politicians. He replaces Mark Carney, who governed since 2013 and won praise for putting climate change on the agenda for finance.
Sajid Javid, Britain’s chancellor of the exchequer (finance minister) said Bailey’s appointment “is one of the most important decisions I will make.”
While the government was looking for a new head of the central bank in 2019, Bailey said the U.K. should simplify its rules for the financial sector once it leaves the EU, seeking an “outcome-based approach” rather than identical requirements.
Bailey’s appointment was widely expected among financiers and observers, who know him well from years overseeing the sector.
“Andrew Bailey has the experience to do the job and is an impressive communicator” — Jonathan Reynolds, Labour MP
Described by Carney as “an extraordinary public servant,” Bailey has already worked at the Bank of England as deputy governor in charge of banking regulation. Since 2016, he has led the Financial Conduct Authority.
During his tenure at the FCA he oversaw an increase in the regulator’s scope, penalties, and staff numbers. While the authority has been under the shadow of industry misconduct scandals — including inappropriate practices in bond sales, abuse of small businesses by lenders and closures of investment funds — Bailey maintained a cordial relationship with the members of parliament who scrutinized his work.
“Andrew Bailey has the experience to do the job and is an impressive communicator,” Jonathan Reynolds, a Labour MP and shadow cabinet member for the financial sector, said in an email to POLITICO. “He would have been near the top of my shortlist and most other people’s too.”
Reynolds said Bailey must “acknowledge there has been concern that the FCA hasn’t been proactive enough on some of the recent consumer scandals, and that there is growing debate over the effectiveness of U.K. financial regulation overall.”
Conservative MP Kevin Hollinrake, who has long criticized Bailey’s FCA for not doing enough to protect small businesses from predatory lending practices, told POLITICO that he “always appreciated Mr Bailey’s willingness to engage and his support of the work of the [all-party parliamentary group] for fair business banking.”
Evolving after Brexit
Bailey has said over the course of this year that Brexit provided the U.K. with an opportunity to maintain high standards of consumer protection and market stability while cutting back on prescriptive norms designed in Brussels.
“Left to our own devices, I think the U.K. regulatory system would evolve somewhat differently. It would I think take on board practical experience more rapidly, and it would be based more on principles that emerge from experience in public policy and somewhat less on detailed rules that can tend to become overly set in stone,” he told financiers in April.
Now, Bailey will have the opportunity to apply this vision to banking and insurance regulations. The U.K. is set to depart the EU on January 31, and leave the scope of EU laws at the end of the transition period at the end of next year.
Bailey has said he would start a “thorough debate” around how closely the U.K. should stick to current EU rules. At the same time, he has stated his own preference would be to tear up the detailed regulations of the EU and instate a set of “enforceable principles” that would guide both the regulators and the industry.
Bailey has been critical of EU rules on authentication of mobile payments and around investment funds, which he said provided a loophole for the failed Woodford Equity Income Fund to invest in obscure assets.
Alongside Brexit, other major challenges await Bailey.
“As an establishment figure with what some consider is a less than inspiring record at the FCA Andrew Bailey will need to demonstrate early that he appreciates the need to address the deep structural problems of our economy and like Mark Carney understands the climate change threat,” tweeted John McDonnell, Labour’s shadow chancellor.
“He is an experienced technocrat — and his appointment suggests continuity” — Elizabeth Martins, economist at HSBC
The economy is slowing, and while Brexit-related uncertainty has somewhat abated after the general election, a no-deal departure from EU rules could still ensue in 2021.
One area where Bailey’s view is unknown is inflation, which influences the central bank’s interest rate policy.
“Mr Bailey is not a renowned dove or hawk or outspoken political commentator. He is an experienced technocrat — and his appointment suggests continuity,” Elizabeth Martins, an economist at HSBC, said in a note. Doves are central bankers who see less risk in the inflation outlook, while hawks favor more aggressive moves to counter the prospect of rapid prices increases.
“The U.K. will in all likelihood have left the EU by the time he takes over, but be heading toward a new potential cliff edge when the transition period expires at the end of the year,” Martins added.
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