Urging firms to take the necessary steps over the next week to plan for a cliff-edge Brexit, the Financial Conduct Authority cautioned on Thursday that the main risks were around how contracts underpinning financial products — from travel insurance to how to trade shares — will work should the UK crash out of the European Union next Friday with no deal in place.
“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,” said Nausicaa Delfas, the FCA’s executive director of international, in a speech.
While the UK parliament has voted down a no-deal exit from the EU, legally nothing has yet been agreed to remove the risk. Theresa May, the prime minister, is heading to Brussels on Thursday to plead for a three-month extension to the Brexit deadline of March 29.
“Repapering” refers to the fact that while UK banks and brokerages have set up new operations in the EU to cope with losing their right to passport — where EU firms can sell their products and services across the bloc without the need for local regulatory permissions or trapped capital — few investor clients have sent back the necessary paperwork allowing these new businesses to trade smoothly. The Financial Times reported last month that just 10 per cent of big investment banks’ clients had done so.
Meanwhile, Ms Delfas sounded the alarm for European-based firms that are yet to apply for temporary permission to continue operating in the UK after Brexit. Just 1,000 have entered the FCA’s “Temporary Permissions Regime”, which gives firms the ability to continue trading in the UK for three years in the event of a no-deal Brexit, giving both firms and the regulator breathing space to set up new permanent licences.
She also added that the FCA would not crack down hard on firms that did not have their transaction-reporting IT systems fully in line immediately after a disorderly Brexit, as long as they could show the regulator they were taking reasonable steps to get them in order.
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