A speech delivered by Andrew Baily on 23 April 2019 discussing, amongst other things, Brexit. The full speech can be accessed here.

“Our regulatory landscape can be viewed as comprising two spaces, an EU and a non-EU one. By this I mean that in one space the rules have been made in order to be consistent with EU law and regulation, and in the other they are the product of domestic UK actions. Strictly, the non-EU space has been the residual of the total space not occupied by the EU space as EU law has had primacy. The EU space has grown over time as a share of the total, though the domestic space has seen important developments such as bank ring-fencing and the Senior Managers and Certification Regime (SMCR).

Another important respect in which the EU space has changed over the years is the move from a system which sets minimum standards of regulation across the EU (the world of minimum harmonised directives) to one where the EU space has been filled with standards that are both minimum and maximum (the world of maximum harmonised regulations and directives). Views on maximum harmonisation in my experience can be mixed – it is more intrusive at the national level but I also hear the argument that it can act as a constraint on so-called national gold-plating of EU rules. It has played a role in ensuring a level playing field across the EU market and facilitating supervisory cooperation between EU regulators through bodies such as ESMA.

I think there are at least two important questions to answer on EU and UK regulation in the context of a future post-Brexit. First, are the EU and UK approaches to regulation notably different, and what does this imply for the future? And second, what sort of equivalence arrangements should we want and expect? These are obviously big questions. So, what follows only scratches the surface in the interest of getting the debate to progress.


What does that mean for the future? Left to our own devices, I think the UK regulatory system would evolve somewhat differently. It would I think take on board practical experience more rapidly, and it would be based more on principles that emerge from experience in public policy and somewhat less on detailed rules that can tend to become overly set in stone.

Let me give one example, something that is the subject of the day at the moment in our world of Brexit preparations, the so-called trading obligation rule in EU law. The problem with this debate from my perspective is that I simply fail to understand why we need such a rule when there is a well-established principle that firms must obtain best execution for their clients.

In such a world, through applying a trading obligation and limiting options for best execution, we harm a regulatory objective we are seeking to achieve. Furthermore, in a world where one jurisdiction applies a trading obligation, it may force others to do the same and drive fragmentation in markets. Taking the lessons of experience, I think it’s safe to say that there are things we would have done differently with EU rules if we had developed them unilaterally, but where we compromised to ensure a level playing field across the EU and through cooperating closely with our counterparts. But where we have generally not differed is in our agreement on the objectives we want to achieve, which will not change with Brexit.


In a post-Brexit world what will actually happen? That will depend on where the process of equivalence leads. I am going to make a few broad points. First, I think the point on the differences of the common law approach strengthens the need for outcomes-based equivalence rather than a rules-based approach – in other words, the outputs of regulation not the inputs. Now that should not be controversial because it is how equivalence works between the EU and the other countries, so why change approach?

But that is not always what I hear. The argument is sometimes made for a form of proportionality in which the UK is held to a higher standard, because it has large financial markets and they are close by.

But if this argument has substance – and the IMF have in the past described the UK’s financial system as a global public good – it should argue for strong outcomes not a switch to rules. And, wherever possible, those outcomes should flow from global standards, which should always be the best test of equivalence. Our financial markets are global not regional.

The central principle of equivalence is that both sides are free to determine unilaterally whether the other side’s approach is equivalent to theirs. Yes, but, taken to an extreme this eliminates any scope for common understanding and goes against some of the significant achievements recently such as the common approach to derivatives clearing and trading between the EU and US that was agreed in 2016 and 2017.

To work effectively, it surely needs a common agreement on ‘rules of the game’ setting out the substance and factors and the procedure for reaching unilateral judgments, and there should be a mechanism also for dealing with disagreements or issues such as withdrawal of equivalence on either side. The substance is the outcomes which are shaped by the objectives that matter in the public interest – consumer protection, market integrity, financial stability, competition and these should be set out clearly. So, it is not about whether we each approve of the other’s rules but whether they achieve the common substantive outcomes.

Moreover, a conclusion that the other party does not meet these objectives must be open to reasonable challenge and therefore with appropriate warning, and any resulting implementation must also be consistent with those objectives. Clearly, the issue of equivalence and the differences in approaches to regulation and legal systems is a big one, and deserves extensive debate.

The things I think we can all agree on are: a common commitment to outcomes based approaches; an expectation that the UK and the EU will be able to find each other equivalent on day 1 by virtue of having the same legislation and well established supervisory approaches; and that as our rulebooks evolve we will both want to ensure predictability around issues such as assessment processes or withdrawal of equivalence in a similar way to, but I hope even deeper, the way that the EU has worked with the US and more recently Singapore.


This joint policy statement sets out the policy to deliver the general approach being taken to ensure there is a functioning legal framework when the UK leaves the EU. It is noted that the authorities have not changed the policy or significantly altered the text of the published materials since their publication as near-final. Final versions of transitional directions and transitional guidance materials published as near-final in Section A of the February 2019 version of PS5/19 have not been included and the authorities are considering whether to make any changes to these in the light of the Brexit extension. The policy statement can be accessed here.

Other publications from the RegZone Brexit news feed

Parliamentary Reports: Brexit timeline: events leading to the UK’s exit from the European Union

House of Commons Library has published a paper which provides a timeline of the major events leading up to the EU referendum and subsequent dates of note, looking ahead to expected events as the UK and EU negotiate the UK’s exit. The paper can be accessed here.

Parliamentary Reports: Brexit: a reading list of post-EU Referendum publications by Parliament and the Devolved Assemblies

House of Commons Library has published a reading list of briefings on Brexit by the Parliamentary library and the Devolved Assembly research services. The reading list can be accessed here.

BoE: Minutes of the Meeting of the Court of Directors held on 12 February 2019

BoE has published the minutes of this meeting, which included an update on Brexit Contingency Planning. The minutes can be accessed here.  

BaFiN: New agreement for supervisory cooperation after Brexit

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) has concluded an agreement with the UK PRA for supervisory cooperation after Brexit on 15 April 2019 and has published today the following statement on its website. The press release can be accessed here.

FCA: "Dear CEO" letter – Wholesale broking firms

FCA's letter sets out its view of the key harms that brokerage firms operating in wholesale financial markets pose to their clients and markets and FCA's planned supervisory work in specific areas for wholesale broking firms. These include compensation and incentives; governance and culture; capacity and conflicts of interest; market abuse and financial crime controls; cybercrime and Brexit. The letter also criticises brokers for failing to keep pace with, and underestimating the requirements of legislation such as MiFID 2 and MAR. The full letter can be accessed here.

FCA: Business Plan 2019/20

FCA's Business Plan sets out its priorities for the period, emphasising that "the immediate priority will remain supporting an orderly transition post-exit". Other priorities include: work on firms’ culture and governance; the fair treatment of existing customers; operational resilience; financial crime/AML. FCA also has longer term plans with regard to the future of regulation; innovation and the use of data and the "intergenerational challenge" in financial services. The plan can be accessed here and the press release here.

HoC: Brexit delayed again: until 31 October 2019?

This HoC Library briefing analyses the implications of the Brexit extension. It can be accessed here.

BoE: Fees regime for the recognition of non-UK central counterparties

Further to its October 2018 consultation, BoE has published feedback and a statement of policy in relation to the final fees regime for non-UK CCP recognition. The feedback can be accessed here.

EC: Statement by Donald Tusk

Text of Donald Tusk's speech to the European Parliament on 16 April 2019 can be accessed here.

PRA: Business Plan 2019/20

PRA has published its Business Plan for the forthcoming year, which sets out its strategic goals for the period. Areas of interest include robust prudential standards and supervision; financial and operational resilience; competition and Brexit. The publication can be accessed here.

The Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2019/843

This SI has been made and can be accessed here.