On 16 September, the FCA published a speech, delivered at Bloomberg, on “Preparing for Brexit in financial services: the state of play”. Although the FCA has already published significant guidance for firms, including on its Brexit web pages, this speech is significant insofar as it summarises the FCA’s evolving domestic and international policy approach, in addition to identifying the key specific regulatory issues that remain unresolved in a no-deal scenario.

In high-level policy terms, the FCA reaffirms its commitment to “close involvement with our counterparts around the world”, including active dialogue with ESMA and individual EU member states, whatever the Brexit outcomes. The speech also highlights the FCA’s overarching need to preserve outcomes that are consistent with its policy objectives, with particular focus on market integrity objectives. The FCA summarises its approach to preparing for no-deal, and highlights that although substantial progress has been made, some risks to market disruption remain, particularly with respect to derivatives markets.

The key issues identified specifically by the FCA as requiring further action at either UK or EU level are as follows:

  • Share Trading Obligation (STO)
  • Derivatives Trading Obligation (DTO)
  • Clearing – in particular the impact of the expiry of the temporary equivalence decision for UK CCPs in March 2020
  • Uncleared derivatives
  • Data exchange (cross-border transfer of personal data)
  • Progress on contract repapering
  • Retail financial services preparation (highlighting the need for firms to engage with local regimes and review arrangements for servicing EU retail customers)

The FCA notes that the FCA’s temporary transitional power may be utilised to mitigate adverse impact on some of these areas (for example, partial relief for the STO), but that this will not be a complete solution where action is needed on the EU side.

Significantly, the FCA’s commentary on almost all of these issues highlights the message that action needs to be taken by EU authorities to mitigate market disruption and adverse outcomes for UK and EU investors, whether in the form of explicit calls to action for EU authorities, or emphasising the FCA’s commitment to continuing dialogue with EU counterparts. Additionally, on the DTO, the FCA notes that “It would be a suboptimal outcome if the only place firms can execute in a way that complies with their regulatory obligations is outside Europe” – in a nod to the solutions currently being explored by UK and EU firms for trading on US and other non-EU markets in response to the conflict posed by the dual DTO application. Firms are also urged to ensure that they are adequately prepared for no-deal, particularly with respect to contract repapering.