FCA Speech: Brexit And Financial Services
Speaker: Andrew Bailey, Chief Executive
Event: City Banquet, Mansion House, London
Delivered: 25 October 2018
Note: this is the speech as drafted and may differ from the delivered version
The FCA is on course to be ready for a hard exit from the EU and has the resources to handle it.
It is important for both sides that we coordinate to avoid disruption in the event of a no deal situation.
We want the permanent arrangement post Brexit to allow for close alignment with the EU, without the UK being a rule taker.
Lord Mayor, it is a pleasure to be at the City Banquet again. I feel that for the first time, I must start with a formal statement on the status of this evening’s event. For the many of you who will be concerned about this, it does not count as entertainment for the purposes of MiFID II. I have applied a simple test to reach this conclusion, tonight is an enjoyable event and no one in their right mind should be doing MiFID II business here this evening. And, what about the future post-Brexit with equivalence? Lord Mayor, you and the Corporation are sui generis, so it’s ok.
While I am on the subject of MiFID II, I have had a couple of complaints – actually, there are others. The first is that MiFID II is leading to a critical decline in the quality of sandwiches served at City events. It’s hazardous for the FCA to give guidance, but here goes. If you are offered a sandwich and are assured that it has no value for MiFID II purposes, I would probably not eat it. The second complaint is that MiFID II is leading to a troubling rise in golf handicaps. All I can say to that – taking a European view – is: ‘Tiger, you should be worried about the even bigger beating you would have taken but for MiFID II’. And, just for the record, I didn’t make those two complaints up.
Planning for Brexit
All of that brings me quite neatly to Brexit. Let me start with the implementation and transitional issues. We are preparing for a range of outcomes including an implementation period that smooths transition and a hard and sudden exit. It’s a lot of work, but I think we are on course, thanks in very large part to the huge input from FCA colleagues. I was amused the other day when someone asked in Parliament if the FCA had adequate resources to deal with this. It was the same day that we put out 900 pages of consultation documents on Brexit preparations for no deal, which is good going in a single day even by our standards.
So I think we can handle it. But, as I have said before, we urgently need the engagement of our EU counterparts so that we can put in place Memorandums of Understanding (MoUs) and other important practical arrangements. This is not just a self-serving UK point; it applies to both sides. MoUs will support cross border supervision of firms and data sharing will support our ability to jointly oversee markets. The FCA is a significant sharer of cross border data. We pass on around 70% of the transaction reports we receive to our counterparts across the EU, and we are committed to continue this if it is possible. We will also need close coordination on MiFID transparency thresholds if the EU version of MiFID is no longer based on UK data.
This technical, regulator-to-regulator coordination is essential to minimise disruption in a no-deal situation. Of course, there is a broader solution to removing cliff edges which is for both the UK and EU to commit to taking reciprocal equivalence decisions on each other’s regimes, as early as possible. Our work to onshore the EU rulebook, as outlined in our consultation, demonstrates that on day one, the UK will have the most equivalent framework to the EU of any country in the world.
At the FCA, we are ready to go forward on this work, and I am encouraged by the recent commitment from Steven Maijoor, the Chairman of ESMA, to start work on MoUs, and that there should be put in place arrangements to avoid disruption to clearing.
More generally, I would like to thank Steven and our counterparts in national authorities in the EU for continuing the very constructive engagement. That’s the spirit to which we at the FCA are committed and we will do all we can to support continued cooperation. From time to time I read recommendations that post-Brexit UK regulators must engage internationally and punch our weight. I can assure you, we already do.
At the same time, at the FCA we have also been making clear that our objective towards consumers and the conduct of firms and markets towards them is critical to us. What does this mean in the context of Brexit planning? First, that the FCA has been a very strong advocate, from very early on, of developing the Temporary Permissions approach to underpin the continuity of service by firms that have up to now serviced consumers in the UK under an inward to the UK passport. I am pleased that these arrangements are now on their way through Parliament, in the form of the Statutory Instrument.
My second example is that we have made it clear to the large international banks operating here that for non-EU clients they should only consider moving activity away from the UK if it is demonstrably in the interests of the client to do so. This is not a matter of being wilfully disruptive; it’s what our objectives mean. It’s about treating customers fairly. Brexit does not override these objectives given to the FCA in statute by the UK Parliament.But, as the FCA consumer objective goes beyond consumers in the UK, it is relevant to consumers elsewhere served by UK firms whatever their nationality. We cannot of course make rules that override those in the EU or require legislation elsewhere that achieves a particular end. But there are things we can do, and we are doing. Let me give two examples. First, we have given our public support to the statement by Lloyd’s of London that in the event of the UK leaving the EU with no transition or implementation period, Lloyd’s underwriters will continue to honour their contractual commitments including the payment of valid claims. This goes to the heart of treating customers fairly. To say the alternative, that valid claims will not be met, would not be consistent with our objectives as the UK conduct regulator and it would violate the tradition of the City of London. To be clear, this is not to deny there are cliff-edge risks to a sudden and hard Brexit transition. There are. But the time to analyse them is over. We have to deal with them and solve the problems we face.
The rest of the speech can be read here
European firms could operate temporarily in the UK after Brexit while seeking full authorisation.
The total value of UK financial services exports remained stable in 2020.
Temporary equivalence was set to expire on June 30, 2022.
The Bank has new powers for reviewing CCPs following Brexit.
Restricting access to London CCPs would result in collateral damage for EU banks and end users.