The FCA has published a speech given by its Chief Executive, Andrew Bailey. The speech was given at the Official Monetary and Financial Institutions Forum Lecture and is entitled Free Trade in Financial Services matters.
In his speech Mr Bailey begins by discussing some history of trade policy and then draws out some salient points in respect of financial services over the last nearly fifty years. In doing so, he covers the global financial crisis, and what this meant for open markets and free trade. He then draws out issues for today and Brexit, setting out principles and standards that could form the basis of agreement on outcomes from financial regulation to support open financial markets and free trade.
When discussing the UK’s future relationship with the EU Mr Bailey states: “if we are to promote open and innovative financial markets then, wherever firms operate cross border, they should be able to continue doing so under the terms of the new relationship. This should be as seamless a process as possible, avoiding any interruption in the supply of services.”
However, if firms lose the right to operate cross-border, Mr Bailey argues that they should be afforded sufficient time to restructure or take other action necessary to avoid a cliff edge, including enabling firms to meet outstanding contractual obligations in order to ensure continued consumer protection in the EU and UK, and certainty for financial markets.
However, in Mr Bailey’s view there should be a strong preference to preserve cross-border operating where it is consistent with overall standards. In terms of what principles might be used when considering such an arrangement Mr Bailey suggests the following:
- any agreement on market access must be clear and sustainable to provide confidence in its long term operation. Trade in financial services can only flourish when built on a stable base that firms and regulators can understand and rely on;
- the most favoured nation principle of non-discrimination should be at the core of any agreement. It should provide for equal treatment under its terms. It should not allow jurisdictions or firms to be discriminated against because of where they are based;
- where market access is predicated on commonality of rules, this should be determined by taking a proportionate and outcomes based approach, focusing on whether rules address the same risks while seeking to avoid market disruption or regulatory arbitrage. It should also take into account the extent to which rules are aligned with international standards;
- currently international standards remain somewhat patchwork but as they develop they can increasingly be relied upon for the purposes of cross-border trade;
- to help achieve this, cooperation is needed. Regulators must work together to protect market functioning and integrity. Given the high degree of integration in financial markets, regulatory authorities should be able to share information without obstruction;
- authorities should explore mechanisms to support greater information sharing where appropriate given the degree of cross-border business or to improve the functioning of the supervisory oversight system; and
- this could include building on existing college arrangements and other types of close working for certain categories of cross-border entity, or in some cases developing new ones. Mechanisms should exit to ensure cooperation on enforcement and other supervisory matters.
View Andrew Bailey speech on Free Trade in Financial Services matters, 29 September 2017