Andrew Bailey, FCA chief executive, said in a recent speech that the transatlantic trade and investment partnership (Ttip), a proposed agreement between the EU and the US, shows there is an opportunity for the EU and UK to have a similar deal of mutual recognition after Brexit.
“In the approach the EU took to the Ttip negotiations with the US, the EU pursued a trade agreement which included provisions for financial services.
“The US wasn’t ready for such a move, but this doesn’t take away from the fact that, to its credit, the EU proposed such an arrangement.
“So, when I hear that there is not a single trade agreement open to financial services [post-Brexit], I think, ‘really?’” Bailey said.
Based on the envisaged Ttip proposal, Bailey said it is possible for the EU and the UK to have open financial markets and mutual recognition of regulatory regimes.
He said the principles of mutual recognition would look like the ones that are already in use to authorise branches of banks from outside the European Economic Area.
“Namely, broad equivalence of regulation in terms of outcomes, supervisory co-operation and good information sharing. We would need to add on a robust dispute resolution arrangement, but this could be done,” he said.
In his speech, Bailey also entertained the idea of what will happen if there is no mutual recognition after Brexit.
He wrote the argument off promptly though, saying it does not make sense to imagine regulatory divergence, especially in wholesale financial markets.
“It is a false concept. Markets are global and we cannot, in practice, diverge much in terms of regulatory outcomes, and regulatory arbitrage is not an allowable ground for competition,” he said.
Secondly, Bailey said the fragmentation of financial markets is not a price worth paying for either side.
“Take clearing houses as a case in point; they reap benefits by being multi-currency. Segregating currencies reduces the depth of liquidity pools and increases costs.
“It is in no one’s interest. Fragmented markets reduce diversification and transparency, thereby increasing risk,” he said.
In January, the head of the UK’s Serious Fraud Office (SFO) warned that Brexit must not interfere with the way criminal professionals are pursued throughout the UK and Europe.
David Green, head of the SFO, said the continuance of investigations will depend on the SFO being able to maintain a working relationship with EU investigators after the two jurisdictions split.
“I am sure enforcement will continue, but other aspects – such as extradition, arrest warrants and investigation orders – will depend on the sort of co-operation that is presently framed within EU regulations.
“I am sure all that will be dealt with because it is in everyone’s interest that some kind of structure like that is maintained,” Green said.