Maintaining market confidence: an update on Brexit

Speech delivered by Nausicaa Delfas, Executive Director of International at the City and Financial: 3rd UK Financial Services Brexit Summit

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Speaker: Nausicaa Delfas, Executive Director of International
Event: City and Financial: 3rd UK Financial Services Brexit Summit, London
Delivered: 5 November 2018
Note: this is the speech as drafted and may differ from delivered version


  • If there is a no-deal Brexit, we are working to ensure a robust regulatory framework and a smooth and orderly transition for firms and their customers.
  • We welcome commitments from the EU to resolve remaining issues – now is the time to resolve those issues and provide certainty to markets.
  • We may be leaving the EU but our financial markets will remain heavily interconnected, and we remain committed to close cooperation with our counterparts in EU and rest of the world.


We are preparing for a range of scenarios, including a so called ‘hard exit’. Of course, we are hopeful for a better outcome – we are strongly supportive of a transition or implementation period, and will do everything we can to support achieving this.

In July, I spoke about our preparations for Brexit, and our vision for the future.

Now, with five months to go before we leave the EU, it is timely to update you on developments – what we are doing to prepare for Brexit, our approach to regulation after exit and what this means for you.

I want you to be assured that we at the FCA are working closely with the Government and Bank of England, and with our international counterparts, to do all that we can to ensure a smooth and orderly transition. We are preparing for a range of scenarios, including the one in which the UK leaves in March of next year without a withdrawal agreement (a so called ‘hard exit’). Of course, we are hopeful for a better outcome – we are strongly supportive of a transition or implementation period, and will do everything we can to support achieving this.

We have worked to address as many cliff-edge risks that we can, but there are some areas that can only be solved by action from the EU. We are encouraged by progress in these areas, with constructive statements from ESMA, France and Germany, though there is more to do.

My colleagues and I have continued to meet with firms, business groups and consumer stakeholders to ensure that we are listening to your concerns and understand your perspective.

Whatever the scenario, we aim to provide as much certainty and confidence as possible for firms operating in the UK and for their customers.

Today I will cover:

  • being ready for a no-deal Brexit
  • managing cliff-edge risks around March 2019
  • looking to a post-Brexit world

Being ready for a no-deal Brexit

We have been working with the Government and Bank of England to ensure that in the event the UK leaves the EU without an implementation period in March 2019 there is a robust regulatory framework on exit day, and to ensure a smooth transition for EEA firms and funds currently passporting into the UK.

Last month, we published our first consultation paper ahead Brexit, followed by the Bank of England publishing theirs. We will shortly be consulting on further changes, alongside the publication of further draft statutory instruments by the Government, continuing our engagement across the sector.

We have set out the proposed changes that would need to be made to the Handbook and Binding Technical Standards that will be transferred to us from the European Supervisory Authorities (what we call onshoring). In line with the wider Government approach, we do not propose substantive policy changes. Our changes are consequential, for example removing from our Handbook references to the EU institutions and replacing them with the UK equivalent.

Also in line with the wider Government approach, we are taking the baseline view that our rules must treat the EU as a third country. As the Government has done, there are some cases where we have derogated from the baseline approach, where that is in line with our objectives. For example, in the context of UK UCITS (which in some cases make a distinction between investments in EEA assets and investments in the rest of the world) treating EEA states as third countries could have caused disruption for some funds, and for investors. In our consultation, we therefore propose to allow UK UCITS schemes to keep the same freedom to invest in EEA assets as they do now.

We also published a consultation on our proposed temporary permissions regime, which will allow EEA firms and investment funds to continue to carry on regulated business in the UK for a limited period after Brexit while they seek full authorisation in the UK. With this regime we seek to minimise cliff-edge risks for inbound firms, and that consumers do not experience any interruptions in service. The consultation paper sets out how we expect the regime to work in practice, how firms and funds can enter it, how long it will operate for, and the rules we propose should apply to firms and fund marketing activities during the regime.

In short, firms should register between January and March 2019 for the temporary permissions regime, and it will apply for a maximum of three years. Firms will be given with ‘landing slots’ within which they’ll need to submit their authorisation application. While in the scheme, we propose to operate a system of substituted compliance for certain new rules which impose obligations, so that in most cases firms will not need to start complying with the full UK implementation of a given rule until the point at which they become UK authorised.

Throughout this work, we have sought to be as proportionate as possible, whilst maintaining appropriate protections for consumers. I’m pleased to say that so far, we have had over 1,300 firms and funds express an interest in joining the regime.

In both cases – amending our Handbook and the temporary permissions regime – these changes will only come into force in March 2019 if we leave without an implementation period. We do not expect firms to make any changes now. However, it is important that firms and others engage with these consultations and respond with any feedback. We are particularly interested to hear of any significant implementation challenges that you would face as a result of our proposals, so we can start working now to address these changes. Both consultations close on 7 December, so you have just over a month to respond. We look forward to hearing your views.

In leaving the EU, we will be taking on new regulatory responsibilities – for example ESMA’s regulatory responsibilities in relation to Credit Rating Agencies (CRAs) and Trade Repositories (TRs). We have published statements on how Credit Rating Agencies and Trade Repositories can register with us before exit day. These involve allowing CRAs and TRs established in the UK to convert their ESMA registrations into registration with us (a conversion regime), as well as offering temporary registration to CRAs and TRs if they are a UK subsidiary of a group with an existing ESMA registration. We have also set out our approach to temporary authorisations of Data Reporting Service Providers (entities that provide a data reporting service under MiFID) and clarified how firms can apply for recognition as an overseas investment exchange.

Transitional measures

Many of you have asked me what our approach will be to supervision and enforcement after March 2019 in the event of a hard exit.

The Treasury has published information on its proposal to give financial services regulators the power to phase in changes that are made as part of the onshoring process. This would give us the power and flexibility to temporarily waive or modify regulatory obligations, and come into effect on 29 March 2019 if the UK leaves the EU without a withdrawal agreement or implementation period.

These powers allow us to enable firms to adjust to the post-exit regulatory framework in an orderly manner, and to protect the integrity of UK markets.

Our approach will be pragmatic and proportionate, and consider the evidence around implementation challenges where they might occur (thus the importance of you engaging with the consultation and highlighting areas which would pose challenges). Firms should continue to do what is in the best interests of their customers, and the market. We will set out more details of how we will apply this in due course.

However, it is important to note that many of the obligations that exist today under EU law will exist when we leave, and so, for the most part, firms will not need to make many changes to be compliant.

Being ready for a no-deal Brexit – firms

In terms of your customers, firms should understand the impact of Brexit on them, continue to service them fully and fairly, and communicate with them in a timely fashion.

Just as we are preparing for all scenarios, so are you. You know your businesses best, and you will be doing your own contingency planning. In our discussions and communications with firms, we have been reiterating this point and making sure that firms are taking steps to ensure they are prepared, whatever the outcome. We are expecting you to take your own legal advice on what a no-deal Brexit might mean for you, and, of course, for your customers, and any steps you may need to take to manage this.

We expect firms to continue to meet our rules as they implement their Brexit plans. For example, if you are expanding your presence in Europe, any structures that you put in place must allow us to supervise your UK business effectively, continue to meet our threshold conditions, whilst providing appropriate senior oversight in the UK.

In terms of your customers, firms should understand the impact of Brexit on them, continue to service them fully and fairly, and communicate with them in a timely fashion. We expect firms to let customers know if there will be any change to your ability to provide services to them post Brexit, and if any changes may affect the customer’s products or contracts (for example in relation to changes to their rights and protection under FSCS and the Financial Ombudsman Service schemes or changing contractual terms).

Our 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 which override those in the EU or require legislation. But there are things we can do, and we are doing, to secure an appropriate degree of protection for consumers. For example, we have made clear to CEOs of large international banks that for their 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. We have also given our 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, whilst its Part VII process is underway.

Being ready for a no-deal Brexit – consumers

Consumers themselves may wonder how Brexit will affect their financial products and services.

If an implementation period is agreed, the status quo will be maintained and consumers will not need to do anything unless their provider contacts them directly.

If there is no implementation period, the preparations that I have mentioned (including onshoring the EU legal framework and our temporary permissions regime for firms) will be in place to provide as much continuity as possible for consumers in the UK – firms that are currently providing financial services from the EEA will be able to do so, and customers will still be protected when we leave.

We are proposing that the ombudsman service will cover EEA firms that enter the temporary permissions regime. We and the PRA are consulting on arrangements for FSCS cover for EEA companies that enter the temporary scheme. Most EEA firms providing UK based consumers with financial products and services are currently not covered by the FSCS. Under the temporary scheme, we are proposing to extend the reach of FSCS cover so that more EEA firms will be covered.

For consumers that live in the EU or EEA, outside the UK, many UK providers are planning to continue to provide services, and we expect them to contact their customers if they need to make changes to their services.

Although we are doing what is in our gift, there of course remain areas that are not and therefore require action on the part of the EU – which brings me to managing cliff-edge risks around 2019.

Managing cliff-edge risks around 2019

As I have described, we have taken unilateral steps to avoid cliff-edge risks within the UK, to maximise continuity and certainty for firms and consumers – ensuring a robust regulatory framework on day one, smoothing the transition to the UK for inbound EU firms and their customers.

Although progress has been made, risks remain, particularly in areas where actions would be needed by both the UK and EU authorities, such as contractual continuity, data adequacy and clearing. The time to resolve these issues and provide certainty to markets is now, and I hope our EU counterparts will work with us to prepare to manage these risks.

For example, one of the risks identified by the Bank of England’s Financial Policy Committee relates to the transfers of personal data between the UK and the EU becoming more restrictive, impacting the ability of UK and EU households and businesses to access services from, and continue contracts with, financial services firms in the other jurisdictions. The UK Government has stated that in a no-deal scenario it will find the EU regime adequate, which will facilitate transfers of data from the UK to the EU. We urgently need similar action from our EU counterparts.

We also need to conclude Memorandums of Understanding (MoUs) and other practical arrangements, to support cross border supervision of firms and data sharing as soon as possible. We are ready to agree such cooperation agreements. This will support our ability to jointly oversee markets, and as such is important not just for the UK, but for our counterparts in the EU too. It is important that financial markets can plan on this basis. This technical, regulator to regulator coordination is essential to minimise disruption in a no-deal situation. In our view, work to prepare MoUs should begin immediately.

I particularly welcome the recent commitments from Steven Maijoor, the Chairman of ESMA to start work on MoUs, and the comments Elisabeth Roegele from the BaFin and Robert Ophèle from the AMF have made in this regard.

We may be leaving the EU, but EU and UK financial markets will remain heavily interconnected and we need – and want – to continue to have close cooperation with our EU counterparts at ESMA and at the National Competent Authorities.

Of course, there is a broader solution to removing cliff-edge risks which is for both the UK and EU to commit to taking reciprocal equivalence decisions on each other’s regimes, as early as possible. Our work to onshore the EU rulebook, in the consultation I referenced earlier, demonstrates that on day one, the UK will have the most equivalent framework to the EU of any country in the world.

We may be leaving the EU, but EU and UK financial markets will remain heavily interconnected and we need – and want – to continue to have close cooperation with our EU counterparts at ESMA and at the National Competent Authorities.

We see outcomes-based equivalence as fundamentally important to support the balance between autonomy and cooperation. We need approaches which deliver broadly equivalent outcomes while respecting the autonomy of jurisdictions. This means that our rules do not need to be identical (indeed, identical rules do not always deliver identical outcomes), and there should be scope to tailor rules to the specificities of our markets whilst continuing to achieve the same outcomes.

Outcomes-based equivalence should allow for regulators to defer to each other’s regimes. In this regard, we welcome the US Commodity Futures Trading Commission’s (CFTC) proposals for closer cross border cooperation and a greater use of deference – reliance on comparable overseas rules – where they deliver broadly equivalent outcomes.

Looking to a post-Brexit world

The UK as a global financial centre

We have been clear that we do not see leaving the EU as an opportunity to join a race to the bottom in regulatory standards – in fact, it’s quite the contrary. We know that you and your consumers need high quality, predictable, stable regulation to thrive and support the needs of your customers.

Both the UK and the EU have a long history of promoting free trade and open markets.

We are determined to preserve this.

And this is not for competitiveness sake. Open financial markets help to diversify risk, increase efficiency and reduce fragility in the financial system, and help our companies access deeper pools of capital.

While Brexit will bring changes to how we engage with the EU27, our globalised financial markets will remain open for business.

The foundations of UK capital markets are strong. This success is underpinned by our high standards of conduct and governance, and our robust legal framework. It is these high standards that continue to attract investors and issuers to London and we are committed to maintaining these high standards.

Our capital markets are, and will remain, global in nature. Figures from the LSE suggest that in London last year 9 out of the 10 top IPOs by size were by international issuers. International corporates have for many years chosen London as the place to raise their funds and list, and they will continue to be able to do so after 30 March 2019.

We will continue to work to ensure we have a regulatory framework which preserves our high standards of conduct and governance while incentivising new issuances and vibrant secondary markets.

We have been clear that we do not see leaving the EU as an opportunity to join a race to the bottom in regulatory standards – in fact, it’s quite the contrary. We know that you and your consumers need high quality, predictable, stable regulation to thrive and support the needs of your customers. We will work with our global counterparts to develop and implement standards which are strong but flexible enough to enable competition and innovation.

Our contingency planning for a hard exit will ensure continuity of access to the London market:

  • International companies that have an EU approved prospectus pre-exit day that has been passported into the UK will retain their validity for the period for which they were originally approved, meaning issuers can continue to raise funding.
  • UK and overseas investors will continue to be able to access global market infrastructures established the UK after Brexit. The temporary permission regime will allow EEA investment firms - including operators of MTFs and OTFs - and funds who rely on passporting to continue to carry out business in the UK while seeking full authorisation.

Global markets based on global standards

International engagement has always been a core part of our work, and it will remain so after Brexit.

This engagement helps us to shape the regulatory rules and standards that are developed and applied here, and across the world – whether bilaterally with our overseas counterparts, or through our role on international standards setting bodies, such as FSB, IOSCO, IAIS.

It also supports our day-to-day supervisory activities and rule-making – building effective relationships with foreign regulators who we rely upon to share information, cooperate on matters of common interest, and learn from. It encourages open markets by ensuring wherever firms operate, they are regulated on a consistent basis.

We remain deeply committed to these relationships and remain steadfast in strengthening these relationships.

We are currently supporting the Government in its ‘global financial partnerships’ strategy, which is focused on enhancing the UK’s relationship with key financial partners around the world and preserving the UK’s position as a global financial centre.

In addition, I represented the FCA at the inaugural meeting in September of the US/UK Financial Regulatory Working Group, which was attended by the US regulators as well as the US Treasury and Federal Reserve Bank. We agreed to cooperate in areas such as financial crime, FinTech and cyber security.

We are also centrally involved in existing financial dialogues the UK has with key global partners including China, Hong Kong, Japan and Singapore.

And we are moving forward with our counterparts to build a financial system where regulators increasingly work together to support firms servicing their customers. For example, last month, we signed our first Mutual Recognition of Funds (MRF) memorandum of understanding with the Hong Kong Securities and Futures Commission (SFC) which will help to boost the investment management industries on both sides and benefit consumers by offering them more choice. This creates a streamlined process by which particular types of authorised funds can be recognised to be marketed to retail investors in our respective jurisdictions.


So, a lot has been achieved, but there is clearly a lot more for us all to do in the coming months and beyond.

We should all continue to prepare for a range of scenarios, including a hard exit, in the interests of consumers and markets. We welcome your engagement, as we continue to consult on our approach.

We should also look to the future and work together to ensure that the UK continues to be a world leader in financial services.