On 24 April 2018, the FCA published a speech given by its CEO, Andrew Bailey. The speech is entitled Brexit: what does it mean for financial markets to be open?
Highlights in the speech include:
- now is the time for the UK and EU authorities to come together and work on the solutions to reduce the risks to financial stability that Brexit could pose;
- the FCA wants to work closely with ESMA and national EU regulators to continue to enhance the stability and effectiveness of global markets; and
- this has global implications, not just for the UK and EU, so it is important to get it right.
When discussing equivalence Mr Bailey states:
- that he agrees with the draft report from the European Parliament by Brian Hayes MEP which argues that the current EU equivalence regime does not best suit any of the parties and that mutual recognition would be the better way to establish the steady-state between the UK and the EU in the future;
- mutual recognition would start by recognising that the regulatory frameworks of the EU and the UK are equivalent on day one of Brexit;
- both the UK and the EU would retain autonomy in rule making but cooperation and coordination structures should be put in place to keep them materially consistent. For example, the FCA wants to work closely with ESMA and national EU regulators to promote common standards in international fora in order to enhance the stability and effectiveness of global markets. Supervisory cooperation should be commensurate with the integration of markets;
- rules should be based on prevailing international standards. Continued alignment with such standards should be a clear intended outcome of any responsible financial centre, and where rules implement international standards, there should be a strong presumption of equivalence; and
- international standards are not always sufficiently detailed and in some cases jurisdictions may wish to go further. As UK and EU rules evolve there should be regular assessments on the differences on the basis of the outcomes they deliver. It should be possible to develop a set of principles by which outcomes based equivalence is assessed. This should give both the EU and the UK comfort about risks to financial stability and should not promote regulatory arbitrage.
Mr Bailey also states that based on the above mutual recognition should be eminently achievable. He also adds that, “to be clear, this is not cherry picking, because that phrase gets used rather loosely at times. It is in fact the opposite”.