Issues with no-deal Brexit preparations ‘still to be resolved’, warns City watchdog

The head of the UK’s financial regulator has struck a cautious tone over the City’s preparations for a no-deal Brexit, warning that while progress is “welcome”, there are “issues still to be resolved”.

Financial Conduct Authority (FCA) boss Andrew Bailey said earlier that overlaps between UK and EU share trading regulations post-Brexit would damage both markets “to no good end”.

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On the same day as Bailey warned of the damage such regulatory overlaps could cause, the government’s City minister told City A.M. that financial services firms were “as prepared as they can be” for a no-deal Brexit.

John Glen, who is economic secretary to the treasury and City minister, said: “I am confident that we’ve worked closely to address the concerns that exist. There are a very small number of residual concerns…but I think we are as well prepared as we can be.”

In his speech this morning, Bailey called for equivalence between the UK and the EU, describing it as “the best option” to avoid overlaps derivatives trading. “Without action, EU firms may lose access to UK liquidity pools and liquidity would be fragmented, harming both markets,” he said.

Although Brussels has previously said EU customers would be able to use UK clearing houses for derivatives until March next year in the event of a no-deal Brexit, the EU would need to grant an extension soon if the UK does leave without a deal.

Bailey warned the process “would impose significant costs on EU firms as well as potentially straining market capacity”, adding: “Ultimately, the best solution is for the EU to grant permanent recognition” to UK clearing houses.

He also reiterated that even through the regulator has been working alongside the Bank of England to prepare for all possible Brexit outcome and “to mitigate the impact of potential disruption”, the FCA “cannot guarantee” that there will be no disruption.

The remarks from two of the Square Mile’s leading public figures come as the UK nears Downing Street’s 31 October deadline for leaving the EU with or without a deal.

Last month the European Central Bank (ECB) urged banks to step up their Brexit preparations, warnings that London-based firms were falling behind on potential plans to move jobs to the EU.

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“So far, banks have transferred significantly fewer activities, critical functions and staff to euro area entities than originally foreseen as part of their plans for Brexit Day One,” the ECB said in a statement.

The relocation of financial jobs and assets has been lower than many in the City had originally forecast, although the anticipated loss of passporting rights – through which companies use London as a gateway to the EU – has nonetheless encouraged institutions to open subsidiaries on the continent to avoid disruption.

Main image credit: Getty