Andrew Bailey has written to the Treasury Committee outlining what the regulatory landscape for financial services would be if the UK were a “third country” in respect of the remaining EU27, with access rules essentially governed by WTO protocols. The letter considers:
- the “most favoured nation” and “national treatment” principles embodied in the General Agreement on Trade in Services, and how nothing in these measures prevents signatories from requiring authorisation. Since authorisation is needed for most financial services, firms could expect to need authorisation from the relevant national regulator;
- the EU passporting system and the direct rights under the EU Treaty, which would be lost to UK firms in the absence of an appropriate free trade agreement with the EU. The letter notes how complex it would be to analyse the possibilities for equivalence and third country passports, and to assess the ultimate effects of loss of passporting rights given the linkages and dependencies between business models and areas;
- the timing and complexity of achieving equivalence, and the limitations of equivalence if achieved;
- the specific landscape for asset management under a WTO framework, in particular the requirements for UCITS funds, managers and depositories all to be within the EU, and the uncertainty over the AIFMD third country passport;
- FCA’s initial views on an optimal framework for financial services post-Brexit: FCA would base this on:
- maintaining cross-border market access;
- having cross-border consistent high standards, which ideally would be globally consistent;
- continued strong frameworks for good regulatory cooperation;
- maintaining influence over cross-border markets where UK consumers have access to these markets; and
- the ability to recruit and maintain a diverse workforce in the UK financial sector;
- FCA’s views on any benefits from Brexit. Here, FCA notes that it has had some problems with inadequately vetted and supervised EU firms passporting in. Also, it notes the greater flexibility to set rules tailored to domestic markets, which could be particularly useful in areas of little cross-border activity. But this is tempered both by the general drive towards global standards and the desire to be equivalent to EU measures; and
- FCA’s desire to continue its participation in global regulatory discussions and build strong relationships with its counterparts on a bilateral basis.
The letter annexes a chart showing which equivalence decisions the European Commission has made in respect of which third countries, under which EU financial services legislation.