The Financial Conduct Authority’s chief executive has given a comprehensive update on his approach to Brexit, calling on the EU to engage on important practical arrangements.

Speaking at the City Banquet at Mansion House last night, Andrew Bailey said the regulator is on course with its preparations for a range of outcomes, including an implementation period that smooths transition and a hard and sudden exit.

“I think we can handle it,” he told City bigwigs. “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,” Bailey added.

MoUs will support cross border supervision of firms and data sharing will support the FCA’s ability to jointly oversee markets. The regulator currently passes on around 70 per cent of the transaction reports it receives to counterparts across the EU, and is committed to continue this.

“This technical, regulator to regulator coordination is essential to minimise disruption in a no-deal situation,” said Bailey. “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.”

The FCA’s work to onshore the EU rulebook, as outlined in a recent consultation, demonstrates that 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,” Bailey continued.

He moved on to the development of Temporary Permissions 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, welcoming the fact that these arrangements are now on their way through parliament.

But, as the FCA's 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,” he added.

As an example, Bailey cited its 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.

“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.”

A second example concerned making it clear to the large international banks operating in the UK 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,” stated Bailey.

He finally tackled the post-transition future and permanent arrangement – something the FCA does not decide on, but does provide technical assistance to the government.

“Whatever happens, as the UK becomes a third country it will operate under a system of equivalence, in the same way as other third countries,” said Bailey. “For me, the guiding principles for such an arrangement should be that we all do everything we can to preserve open financial markets, and particularly wholesale markets, supported by the strong international standards that have been refined or put in place since the crisis of 10 years ago.

“I have said quite a few times before - and this is a personal view - that open markets and free trade are of such importance that we should set a strong example and not resort to the temptations of reciprocity.”

Bailey described himself as an “unashamed free trader” and said that the UK authorities should avoid a world where it is regarded as normal to tell market participants where they cannot and therefore can do business.

“My own view is that the principle of pro-actively recognising equivalence makes a great deal of sense, and is consistent with the arguments put forward by the EU in the context of Brexit in terms of not constraining domestic choices.

“So, it ought to have broad support, except probably amongst those who take a more mercantilist view and are prepared to sacrifice the principle of open markets, with which as you can see I strongly disagree.”

Bailey warned against “a race to the bottom, a bonfire of rules” by appropriately tempering the UK’s approach to the domestic side of things by a commitment to seeking broadly equivalent outcomes.

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