Andrew Bailey, chief executive of the Financial Conduct Authority, spoke Tuesday about the importance of open financial markets post-Brexit. Now is the time, he said, for the U.K. and EU authorities to jointly work on solutions to reduce the risks to financial stability that Brexit could pose.
Speaking at The International Financial Services Forum, Bailey said that both the U.K. and the European Union “will not be able to achieve a successful outcome during both transition and steady-state without working together. Now is the time for the U.K. and EU authorities to come together and work on the solutions to reduce the risks to financial stability that Brexit could pose.”
“At the FCA, we want to work closely with European Securities and Markets Authority (ESMA) and national EU regulators to continue to enhance the stability and effectiveness of global markets,” Bailey added. “This has global implications, not just for the U.K. and EU, so it is important that we get this right.”
Bailey said he welcomes the agreement reached at the European Council on March 23 that there be a transition or implementation period. “This matters in financial services because the risks around contract continuity, data sharing, and broader market disruption could jeopardize financial stability, the preservation of which is a shared objective of both sides,” he said.
Britain’s official departure from the EU is scheduled to take effect on March 29, 2019.
“Dealing with the transition will allow us collectively to focus on the steady-state future,” he said. “The central guiding principle here must surely be that both the U.K. and the EU have a long history of promoting free trade and open markets.”
Bailey also challenged the argument that the best way to preserve financial stability would be “to become less open, to limit cross-border flows of business, to restrict domestic parties from having access to overseas markets, and, thus, to ensure that activity takes place in the home jurisdiction.”
“In my view, closing access to financial markets which are global not regional will undermine not enhance financial stability,” he challenged. “It will reduce the potential for financial markets to support growth and trade, impair innovation and limit the ability to manage risk, and thus make the overall financial system more fragile.”
Bailey noted that mutual recognition is one way to establish the steady-state between the U.K. and the EU in the future. “Both the U.K. and the EU will retain autonomy in rule-making, but we should put in place cooperation and coordination structures that work to keep them materially consistent,” he said. “For instance, at the FCA we want to work closely with ESMA and national EU regulators to promote common standards in international fora in order to enhance the stability and effectiveness of global markets. Our supervisory cooperation should be commensurate with the integration of our markets.”
Concluded Bailey, “I’ll say again, now is the time for the U.K. and EU authorities to come together and work on the solutions to reduce the risks to financial stability that Brexit could pose.”