Nausicaa Delfas’ official job title at the Financial Conduct Authority (FCA) is Executive Director of International, however the financial services media often describe her as the FCA’s ‘head of Brexit’. In late July 2018, she addressed a Bloomberg/TheCityUK event and outlined the steps her organisation is taking to prepare for the UK’s exit from the European Union in March next year.

Ms Delfas began by saying that the FCA would not be taking a public position on the rights and wrongs of Brexit, but that it still had a duty to ensure that its three statutory objectives are still met, these are:

  • Secure an appropriate degree of protection for consumers
  • Protect and enhance the integrity of the UK financial system
  • Promote effective competition in the interests of consumers

She explained that the FCA’s starting assumption was that there will be a transition or implementation period, from March 2019 until the end of December 2020, allowing all parties the chance to adjust to life outside the EU.

However, she also acknowledged that the FCA has a duty to prepare for the possibility of a ‘no deal’ Brexit, a scenario that would mean there would be no transition period either. One of the key Brexit ministers, International Trade Secretary Liam Fox MP, recently put the chances of ‘no deal’ at 60%.

Ms Delfas explained that ‘no deal’ would expose the UK financial system to ‘cliff edge’ risks, whereby the UK would be a full member of the EU on one day, then would crash out of the Union the following day with no arrangements to manage the change. She suggested that a ‘cliff edge’ scenario could lead to insurers not being permitted to pay out claims on policies, and derivatives users not being able to manage the risks of their positions. These eventualities would be in conflict with FCA statutory objectives to preserve market integrity and to protect consumers.

Noting that Parliament has already passed the Withdrawal Act, which provides for the transfer of all existing EU law into UK law on Brexit day, Ms Delfas said that the FCA was already working on ways in which Statutory Instruments and the regulator’s own Handbook would need to be re-worded, for example where existing rules make reference to EU authorities.

Next, she confirmed that a Temporary Permissions Regime would be in place, whereby European firms that currently operate in the UK using the ‘passporting’ system could continue to do so for a limited time after Brexit, before they needed to apply for full FCA authorisation. Ms Delfas did acknowledge however that there is currently no reciprocal agreement for UK firms who operate in the EU. It is to be hoped the situation can be resolved, but at present it is the case that any UK firm that operates in European countries via the passporting system will lose their authorisation to do so on Brexit day (March 29).

Ms Delfas suggested that whatever the nature of any Brexit deal, there was no way that the UK and EU regulatory regimes would not be “highly integrated” in the future, as neither side wished to see significant divergence.

The FCA director commented:

“On day one, our regimes will be equivalent. Our markets will remain highly integrated whatever the outcome of Brexit.”

All regulated firms were directed to the FCA’s new ‘Preparing your firm for Brexit’ webpage. Firms should read this page carefully and consider what preparations they may need to make.

Ms Delfas summarised the work that lay ahead for her and the FCA by saying:

“The scale of the Brexit challenge is unprecedented, but we believe a good outcome is achievable. And from a regulatory perspective, we are working with the Government, the Bank of England and our counterparts across the world to secure just that.

“But we all know that time is tight and the path uncertain – so achieving that outcome, and a smooth transition avoiding cliff edges – requires energy and commitment from industry and regulators alike.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article