The U.K.’s top bank supervisor said a free trade deal with the European Union that includes financial services could be completed in three years, as the Bank of England pushes back against a narrow view of the Brexit talks set out by the EU’s chief negotiator.

Sam Woods, a deputy governor of the BOE and head of the Prudential Regulation Authority, told lawmakers in London on Tuesday that such an agreement could cover financial services such as asset management and banks’ wholesale and trading activities.

“It does strike me as plausible that a detailed free-trade agreement covering the sorts of things I was just talking about — financial services — could be agreed within a three-year period from now,” Woods said. “We’re fortunate in starting this discussion in the unique position in terms of having completely aligned rules and strongly aligned supervision.”

The inclusion of financial services in the U.K.’s post-Brexit arrangement is one of the most contentious areas of discussion as the two sides prepare for talks that are scheduled to start in March on their future relationship. Work on a trade agreement is likely to continue once the U.K. has left the EU in 2019 during a transition period that could run until the end of 2020, although some on the U.K. side want the whole deal to be concluded earlier.

Single-Market Passport

Michel Barnier, the EU’s chief negotiator, last month ruled out a special carve-out for U.K. banks, because the EU has no trade agreements that cover financial services. BOE Governor Mark Carney rejected the “argument that just because it has not been done in the past, it can’t be done in the future.”

Barnier has warned that Brexit also means British firms will lose so-called passporting rights that allow them to sell services freely in the single market. Nor will the EU offer any form of blanket equivalence decision on standards that would allow U.K. firms access to the market from outside, he said.

Woods took issue with Barnier’s recent comments on what a trade agreement could cover. “If that is the line, then I think I would have a different view on it,” Woods said. “My perspective is that it is both desirable and it is entirely technically feasible to devise something which is not one of the two extremes that Mr. Barnier described.”

Woods said passporting isn’t required for some financial services, such as retail banking, which should be handled locally in any case. A middle-ground agreement would cover such things as investment banking, clearing and asset-management delegation, he said. Such a deal would rely on a broad agreement between the EU and U.K. that the outcomes of their rules are equivalent, he said.

“Although this is challenging, my view is it’s entirely doable,” Woods said.

The “worst outcome of all is one in which there’s no transition, there’s no cooperation” and that regulators would be forced to have a “deep fallback” position. Woods said banks’ Brexit preparations would accelerate at the end of March if there is no agreement on a transition process.

Source: Bloomberg