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Financial Services and Brexit

Today, Andrew Bailey, FCA Chief Executive, gave a speech on Why Free Trade and Open Markets in Financial Services Matter (copy attached), during which he outlined the regulator’s Brexit-related work.

This email briefly summarises the key points made:

  • The FCA’s current work on Brexit includes providing technical advice to Government for the negotiations; speaking to firms about their future plans for cross-border operations into the EU (and from the EU into the UK), and helping with the Great Repeal Bill.  The latter is generating the most work, as there is so much EU-related regulation. The FCA has introduced an additional £2.5m levy from firms to fund and resource this work.   
  • The objective is to create a clear and functioning regulatory regime on the day the UK ceases to be a member of the EU, and so give certainty to all parties.
  • As long as the UK remains a member of the EU, the FCA will continue to implement EU regulation and co-operate with other regulators in Europe and internationally sharing information, intelligence and best practice.  A retreat from international engagement ‘would be a big mistake’.
  • Brexit does not mean abandoning the benefits of free trade and open markets in financial services.  The economic and financial cost of losing open markets is too great to be justified and is not a necessary response of choice to Brexit.
  • The FCA believes there is ample evidence that open markets in financial services and free trade can exist safely without common detailed rules and shared regulatory institutions.  Consistent outcomes of regulation are what matters.   The UK will have to provide comfort to trading partners that rules and standards will be upheld, but the UK has every reason to continue to put high standards into practice as our financial markets are an international public good.  There will not be a race to the bottom on deregulation – ‘The stakes are simply too high in terms of the risks to our public interest objectives’.   
  • There is a need to preserve close regulatory and supervisory links with the EU.  This should involve – comparability of rules (but not exact mirroring); supervisory co-ordination; exchange of information, and a mechanism to deal with differences.
  • Since the global financial crisis, a great deal has been achieved in rebuilding financial regulation to serve the public interest of financial stability and good conduct.  These objectives will be continued with Brexit.  The FCA ‘strongly believes’
  • “My view is that if there is a commitment on all sides that the UK and the EU maintain substantially equivalent regulatory arrangements in future, that it will not be necessary to restrict open markets and free trade in financial services and therefore not necessary to limit the freedom of firms on location. And therefore, I see no reason why we should sacrifice open financial markets and free trade, as an inevitable response to Brexit”.
  • During the Q&A session, the FCA emphasised the need for a sensible transition period for implementing any changes required.  This should obviate firms feeling they have no option but to take pre-emptive action to put their contingency plans in place.  It was noted that the more the future regulatory framework mirrors what is in place today, the shorter the transition period required.  The sheer volume of work required will also necessitate a proportionate transition process.