UK financial services to maintain 'equivalence' with EU

In a speech, FCA executive director of international Nausicaa Delfas emphasised the regulator's intention to continue to work closely with its European counterparts "regardless of when and how we leave the EU". The FCA expects to see integration of UK and EU financial markets increase in some areas, although it anticipates some markets may "fragment", with "implications for our common supervisory approaches", Delfas said.

Delfas said that the UK's financial services regime would be "the most equivalent in the world to the EU's on day one" following Brexit, from which point both the UK and the EU would have to make decisions on equivalence on a case by case basis.

Areas in which the FCA is anticipating that it will continue to engage with the EU's future regulatory agenda include the EU capital markets union project, investor protection standards, sustainable finance, anti-money laundering, financial innovation and the future regulation of crypto assets, Delfas said. The EU is also due to review a number of regulatory initiatives "that we have implemented together" including the MiFID, UCITS and AIFMD regimes, benchmarks and the Market Abuse Regulation.

Delfas acknowledged that the UK "may have some flexibility around EU rules we have onshored" in future, "particularly where experience shows them not to be working efficiently or effectively". It would consider these issues as part of its ongoing review of UK regulation, she said.

"We will exercise our flexibility consistently with our objectives, whilst staying committed to high standards and the outcomes we sought to achieve when shaping legislation as a member of the EU," she said. "As part of this, we may be able to deepen our relationships with other financial centres, as part of our commitment to supporting open capital markets which support global growth."

However, the FCA would continue to engage with the future EU regulatory agenda "regardless of where we end up" in relation to Brexit, she said.

"This is not only because our rulebooks start from the same place, but also because we share common regulatory priorities, challenges and concerns," she said.

On equivalence, Delfas said: "Whilst it has not been forthcoming to date, in future we expect both jurisdictions to be able to find each other equivalent on an outcomes basis rather than line by line regulatory alignment, respecting the autonomy of one another's rulemaking. This is the established model currently used by the EU. We believe that equivalence decisions should be based on technical assessments. They should not be political".

Insurance regulation expert Iain Sawers of Pinsent Masons, the law firm behind Out-Law, said: "Firms will no doubt be reassured by the FCA's clear statement of intent to maintain a strong equivalence with the EU in outcomes for both consumer and market participants in a post-Brexit world".

"We welcome the express intention of the FCA to continue to work closely with European supervisory authorities and European policymakers following Brexit on shared issues and priorities. As the FCA notes, the financial services market is highly integrated across the EU and Pinsent Masons has been working hard with firms in the run-up to Brexit to ensure that they continue to be able to maximise potential and fully service their customers," he said.

Delfas also used her speech to update firms on the FCA's preparations for a 'no deal' Brexit scenario, as well as its plans for future cooperation with international regulators.

The FCA is continuing to treat a no-deal scenario as "the default position" and is preparing accordingly, Delfas said. The biggest risks of disruption to UK users of financial services from a disorderly Brexit have been addressed, including through the temporary permissions regime and memoranda of understanding between UK regulators and their European and international counterparts. However, further work is needed in some areas, particularly in relation to share trading, derivatives trading and clearing and data exchange, she said.

The FCA has been an "active supporter" of global standards, and will continue to do so after Brexit, Delfas said.

"We also see international standards as a basis on which we can enhance the flow of financial services between jurisdictions, which in turn can support competition, widen the choices available to consumers, and spread the benefits of useful innovation," she said.

International regulatory priorities for the FCA include financial innovation, market fragmentation, sustainable finance, cyber security risk and operational resilience. The FCA will be publishing its response to a consultation following its joint discussion paper on operational resilience with the Bank of England and the Prudential Regulation Authority soon, Delfas said.