By Jason Douglas

LONDON--Bank of England Gov. Mark Carney said Wednesday the U.K. and the European Union should endeavor to strike a deal on post-Brexit financial regulation in the interests of preserving financial stability.

Mr. Carney said in testimony to lawmakers that existing "equivalence" rules that allow countries with similar financial regulations to sell services to the EU wouldn't be satisfactory for the U.K. after Brexit, as Britain could lose input into how such rules were crafted.

"We don't want to be a rule taker," he said in testimony to parliament's treasury committee, which scrutinizes economic policy.

Mr. Carney said an aim in negotiations should be to create a formal structure for U.K. and European regulators to agree upon new regulations and to preserve equivalence in financial rules. Without such a deal, there's a risk the U.K. could be handed rules that BOE officials judge would risk undermining financial stability, he said.

The BOE said in November that the biggest risks to the stability of the U.K. financial system emanated from abroad and Mr. Carney reiterated Wednesday that Brexit probably isn't the gravest threat. The BOE in November flagged concerns over China's economy as well as wider political uncertainty.

Mr. Carney said that a disorderly Brexit could hurt the EU more than the U.K. if it disrupted access to London's capital markets. That underscores the desirability of an interim deal to smooth the path between the close of negotiations over the U.K.'s departure and the implementation of its new relationship with the EU, he said.

"There are greater financial stability risks in the short term on the continent than there are in the U.K.," Mr. Carney said.

It is in "the interest of the U.K and the EU27 that there is an implementation phase, a transition phase, and that this is agreed early on," he said, referring to the bloc's 27 member states, excluding the U.K.

Write to Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

January 11, 2017 10:48 ET (15:48 GMT)

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