FCA head calls for more financial services Brexit preparation

At a speech in London on Monday, Bailey said there was “no doubt” that financial sector preparations for no deal Brexit had advanced. However he said the FCA was “not complacent” and identified seven issues which required further action, either in the UK or the EU, before Brexit occurred.

These issues included: how to handle clearing; the servicing of uncleared derivatives; data exchange between the UK and EU; moving contracts which will be rendered invalid by Brexit to other jurisdictions, a process known as repapering; issues concerning retail financial services, and the equivalence rules surrounding the Share Trading Obligation and the Derivatives Trading Obligation.

Bailey said for several of these issues the current challenges concerned gaining ‘equivalence’ agreements with the EU, and that the FCA was keen to enter into dialogue with EU counterparts to resolve outstanding questions.  Bailey stated that he thinks there would be "real benefit with our EU counterparts to making clear that in practical terms we will aim to mitigate any disruption to markets, and thus do what we need to do to preserve integrity. I can assure you that this is what the FCA will do."

He said that for several of these issues, such as clearing and data exchange, the UK had legislated to allow EU firms doing business in the UK to continue operating on exit day, or to allow data to flow from the UK to the EU in a no-deal scenario.

Bailey said that firms should talk to the financial regulators in EU member states where they did business in order to maintain their activities after Brexit.

Bailey said that the FCA "will take a pragmatic approach to issues as they arise. We will use forbearance generously but appropriately, to maintain market integrity and protect consumers and market uses."

Bailey gave assurances that the FCA will continue to engage closely with EU counterpart regulatory authorities and said he hoped "we can commit to take the necessary joint activity to deal with issues that arise. In our view, the UK and the EU should be able to find each other equivalent on day one by virtue of having the same legislation and well-established supervisory approaches."

Financial Services expert Tobin Ashby of Pinsent Masons said "Andrew Bailey is keen to emphasise the FCA’s intended pragmatic approach to scenarios that might arise on a no-deal Brexit. On the face of it, his comments on forbearance are positive for UK firms with cross-border business, as apparently is his particular reference to the expectation that UK insurers should put customers first pay claims to policyholders wherever situated. However, as Mr Bailey acknowledges, the local regime, regulators and their transitional regimes cannot be ignored by firms and, as all of these differ, firms still face potential complications still in dealing with existing customers that they will need to work through carefully."