London is the leader in clearing, with the London Stock Exchange’s LCH business dominating the market.
Mr Bailey said moving clearing over to Europe would require about a quarter of the market to shift there, but that would still not be viable and the EU would be likely to grab the remainder. “So it becomes a question about how could it get the other 75pc? That would require something very controversial.”
If the EU was using regulatory pressure on firms to shift activity out of London, he said it would be “highly controversial and that would be something that we would have to, and want to, resist very firmly”.
Any move of clearing to the EU would be a potential financial stability concern in the UK, the Governor said, and appeared to have nothing to do with securing “equivalence” on regulations.
The Treasury is taking the lead on the issue, with support from the Bank, according to Mr Bailey.
Britain and the EU are working to secure a memorandum of understanding that should create a framework for financial regulation between the two in the hope it will grant London more access following Brexit.
However, negotiations appear to have been fraught, with Mr Bailey recently warning in his Mansion House speech that the UK will not be forced to follow EU banking regulations and must be allowed to set its own independent rules.
He said at the time it would be “unrealistic, dangerous and inconsistent with practice” warning the UK is unlikely to agree to EU demands that rules are followed for several years.
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