LONDON: Equity markets will face significant damage in a no-deal Brexit unless the European Union reverses a plan to block traders in its home territory from using London exchanges, the UK’s top market watchdog said.
Andrew Bailey, the Financial Conduct Authority’s chief executive, called on the EU to urgently rethink its position before Oct 31, when Britain is scheduled to leave with or without a deal.
Trading in a large number of European shares will be harmed, Bailey said in a speech yesterday in which he called for a new round of talks with European counterparts to prevent a rupture in markets.
Bailey said some shares would face dual, conflicting obligations because of the overlap between UK and EU rules.
“It is therefore easy to conclude that for those shares, market liquidity would be damaged to no good end, ” he said in prepared remarks published yesterday.
Bailey’s speech at Bloomberg’s London office came with Brexit negotiations at an impasse, as Prime Minister Boris Johnson sticks to his pledge that Britain will leave the EU “do or die” on Oct 31 despite widespread opposition in the UK parliament.
The lingering possibility of a chaotic divorce has led financial regulators in recent weeks to step up contingency plans to limit disruption in markets and ensure banking, investment and trading continues between the U.K. and EU.
While regulators say the biggest threats to finance are contained, headaches remain for £16 trillion pounds in uncleared derivatives contracts, cross-border access for stock exchanges and the exchange of data between firms in the EU and UK.
Bailey said more work was needed on plans for all these issues.
“At the FCA, we will take a pragmatic approach to issues as they arise.
“We will use forbearance generously but appropriately, to maintain market integrity and protect consumers and market uses, ” he said.
The FCA, Bank of England and European authorities have all redoubled their efforts to encourage financial firms to make sure their own plans are in order.
Just last week, the FCA warned firms against complacency and encouraged companies to seek any temporary permissions needed as soon as possible.
After the original March deadline for Brexit was delayed, financial firms slowed their preparations and refrained from moving assets and staff to new hubs in the EU from London.
“Brexit fatigue” took hold of finance, European regulators said in a report last week that warned the industry against complacency about the no-deal possibility.
In the event of a no-deal exit, the FCA would take a pragmatic approach toward enforcing UK rules in a bid to help calm markets, Bailey said in a Bloomberg TV interview yesterday.
“To not forbear would be to damage our objectives, and our objectives are integrity and the operation of markets, ” Bailey said.
“Clearly the authorities, the FCA, central banks, other regulatory authorities will have a very big role to play to step in there and deal with it as most appropriate and as best they could, ” he said.
“We would not stand on the sidelines.” —Bloomberg
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