Governor Mark Carney urges City firms to submit Brexit contingency plans
The Bank of England has asked City financial firms to submit Brexit contingency plans, with Governor Mark Carney warning of major economic harm if negotiations between Britain and the EU falter.
The Bank's Prudential Regulation Authority has written to all banks and financial firms with cross-border activities between the UK and the EU - including subsidiaries of US investment banks based in London - asking them to prepare for all scenarios in the Brexit negotiations, including a "no deal" outcome.
Speaking in London, Mr Carney also said that the global financial system is at a "fork in the road", and that Britain must take the "high road" that builds on the foundations of a "new responsible global financial system that are being put in place".
This will lead to more jobs, higher growth and better risk management, he said.
Mr Carney said that Britain and the EU are "ideally positioned" to agree such a deal regarding financial regulation.
But he also warned of a low road, where "trust and cooperation diminish, fragmentation hardens, capital flows are disrupted, and trade and innovation are curtailed".
This would lead to fewer jobs, lower growth and higher domestic risks.
Mr Carney said: "How the Brexit negotiations conclude will be a litmus test for responsible financial globalisation.
"We start from a position where the high road is both readily attainable and highly desirable for all involved.
"The UK and the rest of the EU have exactly the same rules governing our systems.
"And we have the most highly developed frameworks for intensive supervisory cooperation.
"Capital flows seamlessly across our borders. The current EU legal regime allows firms to passport throughout the Union, supervised by the home supervisor."
The speech is Mr Carney's first since Theresa May triggered Article 50 last week, kick-starting the two-year process of Britain leaving the EU.
The Governor added that there are real risks to financial stability in the transition to the new relationship between Britain and the EU, including disruption of services, a further weakening of investment banking profitability and the potential for greater complexity in firms' legal structures.
Mr Carney also said there should be no "bonfire of financial regulation" following Brexit.