FCA CEO calls for regulatory cooperation
Written by Peter Walker
The Financial Conduct Authority’s chief executive has used regulatory sandboxes as an example of the importance of global cooperation between supervisory bodies, stressing that “the topic of multilateralism is so fundamentally important right now”.
Speaking at the Eurofi Financial Forum this afternoon, Andrew Bailey said that in terms of financial innovation, there is no constraint on any domestic choice on the model of sandbox or what is accepted into them.
“These are all rightly domestic choices shaped by domestic circumstances and demand, but that should not prevent co-operation in order to enable cross-border activity where appropriate – to do otherwise would make no sense,” he stated.
“That is why we in the FCA set up a Global Financial Innovation Network which will help pool regulatory expertise to support firms in trialling innovative cross-border services and products, and it is why IOSCO launched a FinTech Network to explore the effective use of regulation in financial technology and automation.”
Bailey said that it would “be a mistake” to challenge the progress made since the financial crisis in connecting disparate financial regulators, developing and implementing standards which are strong but flexible enough to enable competition and innovation.
“It has always been the case that one jurisdiction cannot constrain the autonomy of another’s domestic regulation - and here I treat the Single Market as one jurisdiction - but it would be a big, and in my view unfortunate, leap to therefore say that we cannot envisage open financial markets which support free trade - and to suggest that we cannot underpin open markets with a common commitment to international standards where they exist,” he commented.
Addressing the UK’s exit from the EU, he noted that the FCA will have to closely coordinate with other regulators, whilst “managing our autonomy”. He offered the example of the MiFID II regulations, which have been calibrated based on UK and EU27 markets combined, so “it may not make sense to break that down and have different UK and EU transparency rules for the same products”.
Bailey continued that while he gets a “clear sense of a common interest” when talking to other regulators, “there is evidently a debate on this as we think about the post-Brexit situation”.
“One perspective is the desire to keep access to the Single Market open to third countries, including the UK, on the basis of open markets, equivalent standards and the right of establishment,” he stated.
“Another is that financial activity involving EU parties should be carried out as far as possible in the EU – but this seems to go against the principle of open markets and free trade, and is unnecessary in view of all the post-crisis work on co-operation and broad alignment of standards.”
Bailey welcomed the US Commodity Futures Trading Commission commissioner Chris Giancarlo’s proposals for closer cross border cooperation and a greater use of deference where they deliver broadly equivalent outcomes.
“In Europe, as we will have identical frameworks, there will be a strong case for the UK and the EU to find each other equivalent on ‘day 1’ and we should now work together to put in place the arrangements to achieve this in practice,” he said, adding that this would be a decisive step to head off the risk of transitional cliff edges.
“There has been a lot of debate around the use of the word ‘mutual’ in the context of the Brexit debate,” concluded Bailey, who suggested the term does not involve constraining domestic autonomy, rather, it involves approaches which should deliver broadly equivalent outcomes while respecting the autonomy of jurisdictions.
“This should facilitate the benefits of open markets, the thing we should all value and work hard to preserve.”