Brexit and beyond

Speech delivered by Nausicaa Delfas, Executive Director of International at the FCA, at City and Financial, 4th UK Financial Services Brexit Summit.

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Speaker: Nausicaa Delfas, Executive Director of International
Event: Speech to City & Financial, 4th UK Financial Services Brexit Summit, London
Delivered: 21 March 2019
Note: this is the speech as drafted and may differ from delivered version

The speech covers:

  • our preparations for exit, expectations of firms, and implications for consumers
  • residual risks
  • looking beyond 29 March 2019, our future relationships on the global stage


Good morning - it is a pleasure to be here.

Since I addressed this conference in November, much has happened in terms of preparing for Brexit – but today, 21 March, one week before we are due to leave the EU, we are in fact only at the beginning of the process of leaving the EU. Moving forward, we will need to forge a new relationship with EU, and the rest of the world.

In the near term, even though Parliament has voted against 'no deal', the possibility of a hard exit remains, unless something else is decided – and as such, it is important that we – FCA and industry – retain our preparedness for all scenarios.

Whilst there is still uncertainty – I remain certain of two things that endure:

  • Our extensive preparations for all scenarios, including the possibility of a hard exit.
  • Our strong foundations for the future, and our commitment to London maintaining its position as a successful global financial centre.

Our approach throughout has been to anticipate and seek to resolve problems, and to work with our counterparts in the UK and internationally to ensure as smooth a transition as possible – and that is what we will continue to do. We have conducted extensive preparations to ensure that the UK financial services system is ready for leaving the EU. We also strongly welcome the range of measures that have been taken across EU Member States to minimise disruption. However, even with these, we cannot rule out some volatility and disruption, particularly in a 'no-deal' exit where risks remain – primarily related to the operational challenges associated with relocating businesses, or repapering clients in a short timescale, and due to reliance on a patchwork of solutions in the EU.

Should risks materialise, we will continue to take a pragmatic and practical approach to resolving issues, and we would encourage you to continue to come to us with any issues as they arise.

At the same time, we have been laying the groundwork for UK’s new position on the global stage, outside the EU – focusing on influencing global standards, and developing new tools for market access. And in this we will need your increased engagement too – to help us to identify markets of key importance to your businesses, and develop our approach to access and regulation.

So today I will cover:

  • our preparations for exit, expectations of firms, and implications for consumers
  • residual risks
  • looking beyond 29 March 2019, our future relationships on the global stage

Brexit preparations

We have been working with firms since the referendum result to ensure that risks relating to Brexit are mitigated and firms are ready for all scenarios, including the possibility of a hard exit. Our approach throughout has been to smooth the transition, and to maintain open markets in the UK.

We have been working with firms since the referendum result to ensure that risks relating to Brexit are mitigated and firms are ready for all scenarios, including the possibility of a hard exit. Our approach throughout has been to smooth the transition, and to maintain open markets in the UK.

As you know, if we leave the EU without a deal, passporting will end.

To prepare for this, we, together with the Treasury and the Bank of England, have introduced new regimes such as the Temporary Permissions Regime and the Financial Services Contracts Regime (FSCR).

The Temporary Permissions Regime will allow EU firms and funds that currently passport into the UK to continue operating in the UK if we leave the EU with no deal, and passporting stops. EU firms will temporarily be able to continue to operate within the scope of their current permissions and EU funds will be able to continue marketing into the UK. Firms will need to notify us that they wish to use the regime using our Connect system – a process we have designed to be as straightforward as possible. Notifications must be submitted by the end of 28 March 2019, just a week away.

Firms which have not notified us that they wish to enter the Temporary Permissions Regime but need UK permission to perform their existing contracts, will automatically fall within the FSCR regime. This will allow firms that have pre-existing contracts in the UK to wind down their business in an orderly fashion. However, there are limits to the FSCR regime, for example EEA established fund managers, depositories and trustees will not be able to manage or provide depositary services to UK authorised funds, unless they enter the Temporary Permissions Regime. So it is vital that firms properly consider whether to notify for entry into the Temporary Permissions Regime, and get their notifications in before 28 March where appropriate.

We are pleased to see that so far over 1,000 EU firms and fund managers representing many more thousand funds have already decided to enter our Temporary Permissions Regime regime and seek to continue to do business in the UK after exit.

After the notification window closes, we will inform the firms of when they will have to submit their application for authorisation – their 'landing slots'. We will ensure that firms and funds have enough time to prepare their applications. We expect the first landing slots to be October to December 2019 and the last to be January to March 2021.

However, at the moment, there is no similar system for UK firms who passport into the EU. A number of EU Member States have put arrangements in place similar but not identical to the TPR arrangements. These include jurisdictions that we know are important to UK firms: Germany, Spain, France, Ireland, Italy, Luxembourg and the Netherlands.

In addition, we will start to regulate trade repositories (TRs) and credit rating agencies (CRAs) in the UK. Any TR wishing to offer its services in the UK will need to be registered with, or recognised by the FCA. Any legal person wishing to issue credit ratings in the UK for regulatory purposes on or after exit day will need to be registered or certified with the FCA. We are in close contact with CRAs and TRs to support a smooth transition to the new regime.

To ensure a robust regulatory regime is in place at exit, we have worked with the Government and the Bank of England to onshore EU legislation into UK law, and to amend our handbook. In the past six months, the FCA has published a series of consultations on how we will adapt our handbook to take account of the UK leaving the EU. Two weeks ago, we published our policy statement and near final rules responding to these consultations.

We appreciate that it might take time for firms to implement these changes in a no-deal scenario. We have therefore published details of how we will use the temporary transition power which the Government has given us to ease the transition. Firms will have 15 months to transition to most of the changes brought about by the onshoring of EU law into UK law.

However, this does not apply to all changes: there are some areas such as reporting rules under MiFID II, where it would not be appropriate to provide a phase-in, as receiving these reports is crucial to our ability to ensure market oversight and the integrity of financial markets. In these areas, we expect firms and other regulated entities to undertake reasonable steps to comply with the changes to their regulatory obligations by exit day. We are conscious of the scale, complexity, and magnitude of some of these changes and consequently intend to act proportionately. We will not take a strict liability approach and do not intend to take enforcement action against firms and other regulated entities for not meeting all requirements straight away, where there is evidence they have taken reasonable steps to prepare to meet the new obligations by exit day.

We have also been updating our own IT systems to reflect these changes. This includes, for example, preparing our own transaction reporting regime under the onshored MiFID/MiFIR. Our aim has been to help firms by making our system as similar as possible to ESMA’s. We have published technical information on these systems changes and will issue specific information on the mechanics of switching over during the weekend after exit day shortly.

Throughout all of this, we’ve been clear that we expect firms to abide by our threshold conditions and principles for businesses, to make decisions consistent with their obligations and to be guided by good consumer outcomes.

To reach as many firms as possible, we have met with trade bodies, and industry groups, published communications outlining our expectations, and engaged directly with firms of all sizes and sectors. We will continue with this approach leading up to 29 March and beyond - for example some of you may have seen our recent webinars for firms in London and in Edinburgh (which have reached over 2,500 firms so far) and read our Regulation Round-up updates, and updates to our websites.

Now to look specifically at the impact on consumers.


Our work to prepare for Brexit has been driven by a desire to minimise disruption for UK customers of UK and EEA firms. We have been working with the Government and other regulatory bodies to ensure that consumers see as little impact as possible.

Our work to prepare for Brexit has been driven by a desire to minimise disruption for UK customers of UK and EEA firms. We have been working with the Government and other regulatory bodies to ensure that consumers see as little impact as possible.

For customers in the UK, the introduction of the Temporary Permissions Regime and run-off regimes should avoid disruptions to products and services provided by EEA firms. UK customers will still benefit from access to UK protection schemes in many cases.

However, the position will be different for EEA-customers who might be impacted because the EU has not taken the same steps at a pan-European level, and their position will depend in part on the approach taken by individual Member States.

European authorities have also been working to minimise the impact of disruption on consumers. In particular, EIOPA issued a set of recommendations for national regulators including on providing continuity for customers of UK firms with life or pensions products who have since moved away to the EU27 (including expats).

Throughout this process, we have been clear with firms that we expect them to have considered how Brexit might affect their consumers. This has been part of our engagement with trade bodies, in our speeches and in our press communication.

Firms should be able to show they have considered how Brexit, and their plans in relation to Brexit, may affect their customers, keeping in mind that different categories of customers might be affected in different ways. Firms should contact each group of customers affected by Brexit to explain clearly how they are or will be affected.

Our message to firms has been clear: that they should have contacted their consumers if anything has changed. This also includes being able to respond to customers’ queries.

The FCA website also provides information for consumers. We highlighted steps that consumers can take now, to reduce the impact of any disruption. For example, a focus of our messaging has been around post-exit travel. UK travellers should check the terms of their travel insurance, to understand what they are covered for; and if they plan to take their vehicles with them, they should contact their insurers in advance to obtain a green card, the physical proof they will need to show they have the necessary motor insurance.

We have been working with other relevant bodies, such as FSCS, FOS, independent advisory bodies, and consumer groups to coordinate our messaging, where appropriate cross-referring to each other’s communications and ensuring we have a consistent approach to responding to the key issues and concerns consumers may have. As part of this approach we monitor consumer contacts to detect emerging issues and ensure there is a coordinated approach to addressing them.

Maximising international continuity

In the same way that our focus domestically has been around ensuring a smooth transition, our short-term priority internationally has been to maximise continuity where we can.

We recently agreed MoUs with ESMA, EIOPA, EBA and national EU regulators which will allow for continued close cooperation in the event the UK leaves the EU without an agreement. Importantly, our multilateral MoU coordinated by the FCA and ESMA will allow for continued delegation of portfolio and asset management activities to managers in the UK. We are also working to agree other arrangements where we can. For example, last week the FCA and ESMA deemed each other’s credit ratings regimes ‘as stringent as’ each other which will allow Credit Rating Agencies in one jurisdiction to endorse ratings from their affiliates for regulatory use under the Credit Rating Agencies Regulation.

To ensure market continuity globally we have put in place numerous arrangements with international counterparts which will enable overseas firms to continue to access the UK market, and vice versa, after the UK has left the EU, in whatever form this happens. For example, the FCA’s Chief Executive Andrew Bailey, alongside Bank of England Governor Mark Carney, recently announced a series of measures agreed to with the Chairman of the US Commodity and Futures Trading Commission (CFTC), Christopher Giancarlo, which provide market participants with regulatory certainty regarding derivatives market activity between the UK and US.

The majority of equivalence decisions that the EU has taken on third countries to date, have been incorporated into UK legislation ensuring no interruption of business. We are also in the process of updating MoUs we already have with all the key financial centres globally in order to continue close cooperation and effective markets in these sectors.

Residual risks

All of our activity has been aimed at reducing the impact on firms, and we have been focused on mitigating cliff-edge risks. As the FPC’s 5th March 2019 Statement set out, most of the risks to UK financial stability that could arise from disruption to services in a no-deal Brexit have been mitigated. But some risks remain, which could affect households and businesses, in both the EU and the UK:

  • First, UK and global banks are transferring activities to EU-incorporated entities, but are to some extent dependent on their clients agreeing to move contracts to these new entities, and we are aware there is varying progress with this.
  • Second, the process of migrating businesses, assets and contracts in a short period could pose operational risks.
  • Third, there is the issue of contract continuity. The EU does not have a pan-European equivalent to the UK’s Temporary Permissions and Financial Services Contracts regimes. While some Member States are taking action, and firms are taking their own action, there are likely to be some remaining areas where the legal risks relating to the ongoing service of existing customers have not been fully mitigated. We are encouraging firms to take the steps they can to act lawfully and consistent with local regulators’ expectations, and equally to ensure their decisions are guided by what is the right outcome for consumers, recognising that it will often be a poor outcome for consumers for firms to simply stop servicing them.
  • And fourth, there are the implications of a lack of equivalence in certain areas. For example, the EU’s trading obligation for shares and derivatives will require EU firms to trade these instruments on EU or equivalent venues. In the absence of equivalence, ESMA have published their expectations for the scope of the EU’s share trading obligation, which will cover a broad range shares. This in our view will create issues of conflicting obligations applying to the same instruments. Where this is the case, firms may be limited to trading certain shares only in either the UK or the EU or in some cases be caught by overlapping obligations. The onshoring of EU legislation in the UK means that the UK will also have an STO. Applying the same approach as ESMA to the scope of the UK STO would, based on current trading data, mean there would be a large degree of overlap between the UK and EU obligations. This has the potential to cause disruption to market participants and issuers of shares based in both the UK and the EU, in terms of access to liquidity and could result in detriment for client best execution. We have therefore urged further dialogue on this issue in order to minimise risks of disruption in the interests of orderly markets.

We are working with the Treasury and the Bank of England throughout this process to minimise disruption, and together we will of course be continuing to monitor developments, and stand ready to act if needed.

Our message here is that we will continue to work in pragmatic way with you – so please do raise any concerns or issues with us, as early as possible.

Future relationships – our continued role on the global stage

Now to look to the future, and forging new relationships with the EU and the rest of the world – as I mentioned at the start, we are at the beginning of the Brexit process.

The FCA is a global regulator and many of the markets and firms we regulate are global. We support open markets underpinned by strong international standards. While this will not change when we leave the EU, our focus on international cooperation and standard setting will increase. At the same time, we will seek to maintain a strong relationship with the EU, our closest neighbour, with whom our markets and firms are the most interlinked.

Why are global standards important?

Common international standards are implemented in EU and other domestic standards too, and form the basis for effective market access – as such, it is more important than ever that we continue to shape those standards, particularly given the role London plays as a global hub for financial services activity, and the increasingly interconnected nature of those markets.

We will continue to work with our key counterparts, and a range of international organisations – such as the Financial Stability Board, IOSCO, G7 and G20, IMF and OECD – groups in which we already hold many leadership positions - to promote our approach and regulatory expertise, and learn from other jurisdictions, on a range of issues which are critical to the functioning of the UK’s financial sector. These areas include: cyber resilience, interest-rate benchmarks reforms, financial crime and anti-money laundering, as well as emerging risks in the non-bank sector, and innovative and technological developments being seen in the financial sectors, by start-up ‘fintechs’ and incumbent firms.

Bilateral and multilateral engagement

And as well as multilateral engagement through standard setting bodies, we have developed a strong programme of bi-lateral engagement to shape and influence international standards and best practice. For example, we participate in a number of Government-led Financial Dialogues with regulators from several major global financial centres, which provide us with a forum for strategic discussions and co-operation, alongside our own proactive visits and meetings. Each dialogue may have a different focus, depending on the nature of business in that jurisdiction. For example, our dialogue with Singapore covered a broad range of areas encompassing the global economy, regulatory developments, FinTech and cyber-security; with Japan, market fragmentation, financial innovation, and sustainable finance; and our US-UK Financial Regulatory Working Group covered possible areas for deeper regulatory cooperation to facilitate further financial services activity between U.S. and UK markets. We also discussed the implications of the UK’s exit from the EU on financial stability and cross-border financial regulation.

And of course, we continue to remain closely engaged with our EU partners as well. EU and UK markets will remain interconnected in any scenario and therefore continued cooperation with our EU counterparts and engagement with all the EU Institutions is of the upmost importance. For example, post exit we will both be operating the same legislative frameworks, and we will likely be reviewing these frameworks in parallel, which will provide a strong basis for close cooperation and reaching a shared view on areas where they can be developed and improved.

Market access - supporting cross border markets

We are strongly supportive of open capital markets, the benefits of cross border trade and recognition of cross border regimes on the basis of outcomes. Our objectives here align with those of the Treasury, with whom we are working closely on developing its non-EU engagement agenda going forwards, including ways in which we can enhance our regulatory cooperation with key jurisdictions and exploring options for new mechanisms for market access.

The FCA is working closely with the Treasury on the Government’s Global Financial Partnership Strategy, announced by the Chancellor last June, which seeks to maximise the UK’s trading and regulatory relationship with a number of non-EU jurisdictions after the UK has left the EU. We have provided technical advice and input into a variety of proposals for ways in which this can be achieved, including through enhanced dialogue, regulatory cooperation, and streamlined market access arrangements.

A relatively new area of focus for the FCA is our role in providing technical expertise and advice to the Treasury as the Government develops its positions on financial services trade policy. Post-EU, the UK will have the ability to develop its own independent trade policy which will require us to contribute technical support and advice on free trade agreements covering financial services, as well as other mechanisms for enhancing trade and regulatory cooperation. It is expected the negotiations with priority non-EU countries would begin shortly after the UK has left the EU.

An example where the FCA has taken forward work to support market access is the Mutual Recognition of Funds (MRF) agreement we recently signed with the Hong Kong Securities and Futures Commission (SFC), which supports reciprocal access to each other’s jurisdiction for the marketing and distribution of investment funds covered by the scheme.

The agreement was made on the basis that Hong Kong and UK rules aim to achieve equivalent outcomes to each other. Close and ongoing regulatory cooperation is key to the success of this scheme, and other similar market access arrangements. We therefore support HM Treasury’s aim of expanding the financial regulatory dialogues the UK has in place with priority countries as they will provide a further useful mechanism for ensuring this cooperation going forwards.

We also welcome the international attention being paid to market fragmentation – in both FSB and IOSCO. Market fragmentation – which can be caused by issues such as varying implementation of global standards, or restrictive domestic rules - restricts the free-flow of financial services activity, has the potential to reduce liquidity, increase fragility, and reduce operational efficiencies. We are actively contributing to the work being done on this under the Japanese G20 Presidency, and are exploring potential mechanisms to reduce fragmentation or market access barriers arising in the future, such as enhanced cooperation between regulators, or strengthening the ability of regulators to use recognition tools where it is appropriate to do so.

Our future relationship with the EU

Of course, our future trading relationship with the EU is still to be negotiated and agreed. We are only nearing the end of the beginning. Our work to onshore the EU rulebook means that on day one, the UK will have the most equivalent framework to the EU of any country in the world. This provides a strong basis for the EU and UK to find each other equivalent across the full range of equivalence provisions.

However, we recognise that the current equivalence regime operates as a patchwork, and does not provide for access in some key areas. As such, it remains important to establish further detail on the operation and maintenance of the equivalence regimes, and the institutional framework for supervisory and regulatory cooperation. As both the UK and EU are committed to open markets, there is also a strong basis for both sides to discuss broadening their respective equivalence frameworks and deepening supervisory cooperation to support this.

And going forward we will retain a keen interest in the policies and standards being developed by the EU, and in the EU model of regulation as it develops. Given our interconnections, we will remain keen to discuss regulatory issues and specific legal requirements, and to exchange perspectives and experiences of regulating our respective financial centres. Whether in respect of securities markets, funds, insurance, banking, payments or innovation, we will continue to seek to learn from each other - as we do with all regulators and policymakers.

And in all this, just as we have engaged with you on preparing for Brexit, so we will need to engage with you going forward on global standards, and access to international markets.


Our international engagement does not diminish with Brexit: in fact, it only increases with importance - now more than ever it is vital that we have strong links with our international counterparts, help shape global international standards, and explore new options for market access and regulatory co-operation and recognition.

So to conclude, we all have a busy agenda ahead.

Our international engagement does not diminish with Brexit: in fact, it only increases with importance - now more than ever it is vital that we have strong links with our international counterparts, help shape global international standards, and explore new options for market access and regulatory co-operation and recognition.

Whilst we have all done what we can to ensure as far as possible a smooth transition, we cannot rule out some disruption and volatility. But you should be rest assured that we will continue to take the same approach as we have done to date – to seek to address problems, and drive the right outcomes for consumers and markets.

We look forward to continuing to work with you on both these issues.