Brexit – FCA gets punchy as it plans for no-deal

The UK and the European Union’s financial regulations may “evolve” after Brexit but that should not impede access to one another’s markets, a senior UK regulator has said.

In a pointed rebuttal of criticism from EU regulators, Nausicaa Delfas, executive director for international at the Financial Conduct Authority, said that UK regulators were planning for a scenario in which the UK crashes out of the EU in March with no deal, but were pinning their hopes on the transition deal through late 2020 that has been agreed but not ratified. She upbraided her European counterparts for not introducing temporary permissions to operate, as the UK is doing for EU firms.

Ms Delfas warned that financial firms expanding their EU operations because of Brexit must still have sufficient top brass in the UK who can be answerable to British watchdogs, and that whatever their new structure it must not impede direct oversight of firms’ UK businesses by UK regulators. EU regulators have been just as demanding in saying senior managers must be located in the EU, and they are also insisting on direct oversight.

Her comments come a week after the UK government published its white paper detailing its Brexit negotiating position, including for the first time detailed proposals about how to approach financial services. The UK jettisoned a previous idea for “mutual recognition” of standards between the EU and the UK and instead proposed building on the existing legal mechanism of so-called equivalence, which allows access to financial firms beyond the EU in some areas. But it is currently patchy and can be withdrawn with just 30 days’ notice.

“Common outcomes should be the criteria by which we judge one another’s regulatory position, and thus the access that we are prepared to grant to one another’s markets. What matters more is not what road we take, but what that final destination is — and as long as the UK and the EU maintain a commitment to protecting consumers and to strong, open markets, there is no reason this cannot work in practice,” Ms Delfas said in a speech in London on Thursday, according to prepared remarks.

EU firms that are still planning to access the City of London will be given temporary permission to operate in order to smooth the effects of having to seek full new regulatory authorisation in a short time period, the government has already confirmed. The FCA is giving firms a “landing slot” to then apply for full authorisation, with the first expected in late 2019, Ms Delfas said on Thursday.

EU regulators are yet to present a parallel backstop for UK firms seeking to retain access to the bloc, however.

The challenges this presents, in terms of lack of commercial certainty, and business disruption, is clear from my speaking to senior leaders in regulated firms,” said Ms Delfas. “Needless to say, we think this is necessary to provide certainty and smooth the transition, and it is something we stand ready to discuss with our EU counterparts.

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