Financial services industry needs clarity on post-Brexit market access, says Committee
27 January 2018
The EU Financial Affairs Sub-Committee reports on their inquiry into Bxexit: the future of financial regulation and supervision.
The report highlights the risks of market fragmentation and instability if the UK and EU cannot agree a deal on market access once the UK has left the bloc. The Government must urgently clarify what outcome it wants from phase two of Brexit negotiations and on transitional arrangements, or firms will be forced to activate costly and potentially irreversible contingency plans.
Commenting on the report, Baroness Falkner of Margravine, Chair of the EU Financial Affairs Sub-Committee, said:
"There is a risk of market fragmentation and financial instability if the UK loses access to the EU, as well as harm to customers and businesses. The UK's financial services sector is a global asset and both sides should want it to continue serving clients throughout Europe.
"The financial services sector needs greater clarity from the Government about what it wants after Brexit, and it needs it now. A transition period is meaningless without a destination.
"Brexit is an opportunity to tailor the regulatory regime to strengthen the UK's financial services sector, but the UK must remain committed to the international standards put in place following the financial crisis and continue to shape them to ensure a robust regulatory regime."
- International standards and EU law has shaped the UK's regulation of financial services. The UK heavily influenced these and it must continue to adhere to international standards and find a way to shape them in future, especially if there is a risk of them being undermined by other states.
- Post-crisis reforms have promoted financial stability and the Government should continue to advocate these reforms, especially if faced with initiatives by the EU that would lead to market fragmentation and a rowing back on the post-crisis commitments, such as current proposals on potential central counterparty (CCP) relocation.
- The translation of EU regulation into domestic law will need delicate handling by the Government. Some rules will need to be enshrined in statute. However, it may be more appropriate in some areas for regulators to issue guidance and set standards. Any future regulatory regime will likely result in a significant increase in the powers of domestic regulators. It is vital that Brexit, in transferring powers to domestic regulators, should not result in an unintended deficit in democratic scrutiny and accountability.
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