UPDATE 2-Britain's EU ambassador is surprise pick for Bank of England role
* Jon Cunliffe to succeed BoE deputy governor Tucker
* Cunliffe practised at EU and G20 regulatory negotiations
* Civil servant is Osborne's second surprise for BoE role
LONDON, July 26 (Reuters) - Britain unexpectedly named its ambassador to the EU as the Bank of England's next deputy governor for financial stability on Friday, moving to protect its financial sector on the international stage.
Jon Cunliffe, 60, is a career civil servant who led British negotiators at G8 and G20 meetings during the financial crisis, and since January 2012 he has been Britain's top representative in Brussels. He will start at the BoE on Nov. 1.
Cunliffe's name had not been widely mentioned as a potential successor to deputy governor Paul Tucker, who decided last month to step down after finance minister George Osborne selected another outsider, Mark Carney, as governor.
Carney - previously Canada's central bank chief - welcomed Cunliffe's appointment, saying he had got to know him in his earlier role. Osborne said Cunliffe would help represent Britain abroad during his five-year term at the central bank.
"His deep experience in engaging with the European Union will be instrumental in ensuring Britain's financial services are well represented and protected," said Osborne, whose officials interviewed candidates earlier this month.
The global financial crisis tarnished the reputation of Britain's light-touch banking regulation, and the government has since toughened the rules and given the BoE the role of financial supervision.
But the government is concerned that the slower-moving EU process of implementing new global rules may ultimately cramp its scope in regulating Europe's largest financial centre.
The European Central Bank, for example, will soon have powers to regulate banks in the euro zone, with potential knock-on effects for London.
"It will be interesting to see if the Bank will now have more of a presence in Europe. They don't have much right now," a Brussels-based EU diplomat said.
"In having someone who understands how European negotiations work, at which points you engage and what you have to be ready for ... it's a significant gain for the UK," he added.
Cunliffe has only been in Brussels for 18 months. Some of his foreign counterparts there said they often turned to him at their weekly meeting for a detailed explanation of finance or global markets, drawing on his experience in handling crises including the collapse of Britain's Northern Rock bank.
"When you take a negotiating position he will tear it to pieces and put it back together again so you feel you have really been grilled. He has worked with Carney and they know each other well," the diplomat said.
In a previous role at the finance ministry Cunliffe observed the bank's monetary policy meetings, but he has made no public comment on his own current views.
His international background may have given him an edge over potential internal contenders for the deputy role such as BoE markets director Paul Fisher and financial stability director Andy Haldane.
"He wasn't on the list of front runners for the job but his CV fits the bill," said J.P. Morgan economist Malcolm Barr.
Cunliffe will serve on the BoE's Financial Policy Committee, which sets the tone for financial regulation, the board of the BoE's Prudential Regulation Authority, which runs day-to-day regulation of banks, and the Monetary Policy Committee.
Some had mixed feelings about his long service at Britain's finance ministry and previous close working relations with prime ministers Gordon Brown and David Cameron, as well as his lack of first-hand financial markets experience.
"One could argue that more coordination between monetary and fiscal policies is precisely what is required in current times. But too close a relationship with the politicians may not be a good thing," wrote HSBC economists Simon Wells and John Zhu.
"As deputy governor ... a key skill is an understanding of the workings of banks and other financial institutions. On this, Sir Jon is perhaps more of an unknown quantity," they added.
Tucker, who has spent his entire career at the BoE, has expressed strong views on banks' need to hold more capital and to be able to be broken up easily if they get into trouble.
However, some in government fear the BoE's approach to bank capital is holding back economic recovery.
In a statement released just before news of Cunliffe's appointment, Tucker said he would step down on Oct. 18 and take teaching and research fellowship at Harvard University.
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