LONDON: European Union proposals to make it harder for euro zone countries to impose rules on Britain's financial sector need fleshing out so they work on the ground, Bank of England Deputy Governor Andrew Bailey said on Wednesday.
The proposals offer safeguards to limit euro zone countries' ability to impose regulation on the City of London, the EU's biggest banking centre, as part of reforms designed to dissuade Britons from voting to leave the 28-member bloc.
"These are the right words. Let's now flesh them out," Bailey said about Tuesday's proposals from European Council President Donald Tusk, which will be discussed at a summit of EU leaders in two weeks' time.
"The devil is in the detail," Bailey told a British parliament committee hearing on the costs and benefits of EU membership, where legislators expressed doubts about whether the EU concessions on regulation and other areas amounted to much.
"We have a vision as to how it could work. It does not mean it's as cemented-in as it should be," added Bailey, who heads the BoE's banks supervisory arm.
In theory the new framework would make it easier to change poorly thought-out rules such as the Solvency II regulations for insurers, Bailey said.
Britain's referendum on staying in the EU is expected in June. Bailey said that if Britain voted to leave the bloc, the BoE's immediate focus would be on keeping financial markets stable and dealing with fallout for the wider economy.
Since Christmas there had already been "quite marked changes" in the pricing of sterling risk options, he said.
The market showed a jump last month in the cost of insuring against currency volatility between six and nine months ahead, the period expected to cover the vote.
Bailey has asked Britain's banks to provide details about their exposures to this market, a step the BoE usually takes for assessing potential risks to wider financial stability.
After the immediate fallout from a 'Brexit' vote, it was unclear what would happen next as much would hinge on Britain's new trading terms with the bloc, Bailey said.
"That has a very big bearing from the point of view of the framework of supervision on what happens next," Bailey said.
In the short term, EU rules already written into British legislation would remain in place, and banks should not assume there would be a bonfire of regulations later, Bailey said.
Returning to the light-touch regulation in place before the 2007-09 financial crisis, which left the public having to bail out lenders, would be disastrous, he added.
Britain would need to have rules as strict as those of the countries it wanted to trade with, especially the United States, which has introduced a welter of regulation since the crisis.
"You wouldn't immediately assume there is a sort of golden world out there where it's all different," Bailey said.
Tracey McDermott, acting chief executive of the Financial Conduct Authority -- a job Bailey will take up on a permanent basis in the summer -- told the committee that being outside the EU would allow the UK to make slight changes to regulation, but that bank conduct rules would remain much the same.
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