Britain says the two sides are “very close” to a transition agreement that would allow the status quo to continue for about two years. Hammond suggested last week that, once the deal is agreed, regulators could reassure businesses about future regulations that will govern their activities.
Hammond’s appeal to supervisors “seems somewhat reckless to me,” said Neil Robson, a regulatory partner at Katten Muchin Rosenman U.K. in London. “Firms providing services cross-border need certainty, not comforts that could be withdrawn if the European Commission doesn’t like the way that the discussions progress over coming months.”
A transition agreement may not be enough by itself to provide reassurances to businesses because the withdrawal deal will still have to be ratified by lawmakers. In the meantime, supervisors have to plan for the worst and make sure banks will be ready if the Brexit talks fall apart, according to Ed Sibley, deputy governor for prudential regulation at the Central Bank of Ireland.
“The nature of European negotiations is such that nothing is agreed until everything is agreed,” he said in an interview. “We are going to be dealing with uncertainty, even if there is a broad agreement on points of principle around transition, until an agreement is ratified.”
Without legal clarity on the agreement, supervisors probably won’t be able to offer firm advice to banks, said Richard Reid, honorary senior research fellow in finance and regulation at the University of Dundee.
“I suspect any regulator would be extremely circumspect in giving any concrete advice during a transition phase precisely because of the uncertain political setting,” he said. In the U.K., “I would doubt if many firms would be likely to take significant business decisions during the transition phase unless the political situation became much more stable and predictable.”
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