(OFFICIAL)-UPDATE 1-Brexit will split financial markets, says Bank of England appointee

(Replaces Hall quote in paragraph 3 on fragmentation after BOE clarified it referred to clearing houses with new paragraph 3 and 4 from a questionnaire to lawmakers)

By Huw Jones

LONDON, July 20 (Reuters) - Brexit will make markets less efficient but it won't be disastrous for Britain's economy, an appointee to the Bank of England's Financial Policy Committee (FPC) said on Monday.

Britain left the European Union in January, with transition arrangements that afford continued full access to the bloc ending in December.

Jonathan Hall told the Treasury Select Committee that Brexit represented a longer term risk of increased fragmentation and complexity in financial services.

"This would increase friction costs for the economy, the supervisory burden," Hall said in a questionnaire he completed for the lawmakers.

Faced with an economy slammed by the COVID-19 crisis, Hall, a former Goldman Sachs banker, is due to start a three-year term on the FPC, a body set up after regulators failed to spot the last financial crisis coming a decade ago.

Britain's financial sector is "quite different" in size and complexity compared with its European peers, Hall told the online meeting.

Future direct EU access for financial firms in Britain will hinge on Britain remaining "equivalent" or aligned with rules in Europe, but Hall said Britain can't be a "rule taker".

"It's very important that the UK does remain the regulator for the financial market in the UK," he said.

Britain's banks, some of whom needed rescuing by taxpayers in the last crisis, were in good shape when the COVID-19 shock hit markets in March, he said.

It was "so far, so good" and there is no evidence that tougher capital rules brought in after the last crisis were restricting the ability of banks to lend to help businesses recover from the impact of COVID, Hall said.

Britain is looking at ways for insurers, pension funds and others to invest in firms struggling to repay loans taken out during the pandemic.

"You can imagine some kind of closed-end fund that has a very diversified pool of small and medium sized businesses. But does the public sector need to do anything to help that along given this needs to move faster?" Hall said. (Reporting by Huw Jones; Editing by Andrew Heavens, Ken Ferris and Alison Williams)

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