On 28 October 2019, Nausicaa Delfas (Executive Director of International at the FCA) delivered a speech at the UK Financial Services Industry Beyond Brexit Summit, on preparations for Brexit and the future of financial services regulation in the UK. Key themes to emerge included the FCA's readiness for any form of Brexit and, second, its commitment to the future; where the UK remains a pre-eminent global financial centre, which maintains strong international connections and works well for consumers and market participants.
No-deal Brexit
Delfas outlined how the FCA has "undertaken extensive preparations" in anticipation of a potential no-deal Brexit, including providing extensive guidance to firms. The Financial Policy Committee has concluded that if a no-deal Brexit were to occur, given regulatory and industry progress, the UK financial system "has prepared" for a disorderly Brexit and for as smooth a transition as possible.
In particular, the legal and regulatory framework provides continuity to firms and the timeframe for compliance with any changes will generally be extended until the end of December 2020. The temporary permissions regime will allow UK consumers to receive services from EEA financial firms and for those firms not opting in, there is an option to wind down their UK business under the financial contracts regime. The FCA has agreed MOUs with all European Supervisory Authorities and Member States which will preserve international relationships and agreements. The EU Commission has also taken steps to address financial stability, although it has said it will not take steps to address market disruption.
However, the FCA acknowledges remaining challenges and areas requiring further action, especially around the Share Trading Obligation, Derivatives Trading Obligation, clearing, uncleared derivatives, data exchange, contract repapering and retail financial services preparation. These areas are important, they also represent areas of international coordination and may have financial impacts given investment options, market access and capacity, cost of transactions and limiting the flow of personal data between the UK and EU. The FCA is supplementing its supervisory engagement with increased training and awareness communications, and intends to support firms in implementing their contingency plans following Brexit (including working with European counterparts as necessary).
Future relationship with Europe
Following the Brexit discussion, Delfas turned to the FCA's vision for the future relationship with Europe. As a starting position, the onshoring process of post crisis reform means the UK leaves the EU with an identical rule book, common supervisory approaches and a strong history of co-operation. That and the highly integrated nature of markets, means that the FCA and European Supervisory Authorities will continue to work together closely on broad and firm specific issues.
This co-operation is important in tackling shared issues like financial stability and market abuse, to ensure co-ordination around equivalent outcomes and to avoid regulatory arbitrage. Looking forward to the future EU agenda, co-operation will be key given shared regulatory challenges, priorities and concerns.
On the equivalence issue, Delfas reiterated the FCA's position that (given our common rulebooks) immediately following Brexit, the UK will be the most equivalent in the world to the EU. Whilst the FCA acknowledges equivalence decisions have not been "forthcoming to date", it thinks decisions should be based on a technical not political assessment and expects 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 rule making".
International engagement
Another facet of the future of financial services regulation concerns the FCA's international engagement and cooperation, particularly given the global nature of our financial markets, regulatory challenges and international standards. The FCA actively supports and recognises the benefits of developing global standards. Examples of critical policy areas include IOSCO (the FCA currently chairs the IOSCO Committee on Investment Management), the FinTech network (promoting collaboration and understanding between authorities on emerging technologies) and the Global Financial Innovation Network (the FCA currently acts as chair of that coordination group). More generally, international standards around cyber security, market fragmentation and sustainable finance are of particular concern to the FCA and international regulators where international collaboration to ensure cohesive market responses remains a priority.
Future approach to regulation
Ten years have passed since the financial crisis and the FCA considers it is "the right time" to review its approach to regulation to ensure it is fit and adaptable for the future on an outcomes focussed basis. As part of that process, the FCA will work closely with HM Treasury and the Government regarding mechanisms for trade and regulatory cooperation. In maintaining rules fit for the future, high standards and international connections, the FCA expects to support competitive and better outcomes for consumers and market participants.