Financial markets are still at risk of disruption if there is a no-deal Brexit, Britain’s Financial Conduct Authority said on Wednesday.
FCA Chief Executive Andrew Bailey told a House of Lords committee that despite a number of measures being taken, he could give no assurance there would not be disruption if Britain crashes out of the European Union next month without a deal.
Britain is due to leave the EU on March 29 but has so far not reached an agreement with Brussels that would include a business-as-usual transition period.
Britain and the EU have taken steps to avert dislocation in markets, but Bailey said work remained to be done to mitigate risks to financial stability from uncleared cross-border derivatives and exchange of data.
But unlike Britain, Brussels does not view disruption to uncleared derivatives as being a threat to financial stability in a no-deal Brexit. It decided there was no need for EU-wide action, leaving it to individual states to introduce what Bailey called a patchwork of measures.
“Those measures are not the same. Some are more robust than others … It’s helpful in term of reducing the cliff edge,” Bailey told a House of Lords committee on EU affairs.
Brussels was unwilling to go as far as Britain in taking steps to avoid disruption to markets from any hard Brexit partly because it wanted to see a transfer of financial services activity from Britain to the continent, he added.
A hard Brexit also risk disrupting the flow of data between financial firms in Britain and the EU, he said.
The FCA has told financial-services firms in the past 24 hours they need to put in place contingency measures, such as clauses in contracts, as a workaround to avoid disruption in data flows, Bailey said.
Norway Model ‘Problematic’
The EU’s system of financial market access, known as equivalence, is the likely basis for future UK trading relations in finance, Brussels has said.
EU grants access to a foreign financial firm if it deems its home rules to be aligned closely enough with those in the bloc. But Brussels is tightening the equivalence conditions for derivatives clearing and investment firms ahead of Brexit.
This raised the question of whether Brussels would have stricter market access conditions for financial firms from Britain compared with those from smaller, far away countries, Bailey said.
This would contrast with the pact announced by British and U.S. regulators on Monday to allow long-term two-way trading and clearing of derivatives contracts across the Atlantic irrespective of the form Brexit takes, he said.
Many banks, insurers and trading platforms in London are opening EU hubs to avoid depending on patchy equivalence.
Some lawmakers say Britain should replicate Norway’s ties with the EU in the longer term, which means following its rules in return for better market access.
Bailey said the Norway “model” is problematic, given Britain would have no say over the EU rules it would have to implement.
(Reporting by Huw Jones; editing by Toby Chopra)
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