Step up Brexit planning, City warned by Financial Conduct Authority

Bank of England

The City has been told to intensify its preparations for Brexit amid concerns that the UK could fail to strike a trade deal with Europe.

Christopher Woolard, interim head of the Financial Conduct Authority (FCA), warned firms yesterday that they should brace for all possible outcomes of the trade talks between London and Brussels. “Our message is to continue to prepare — indeed to ramp up preparations — for a range of scenarios,” Mr Woolard told the International Financial Services Forum.

Although Britain officially left the EU at the end of January, financial services businesses based in the UK have retained their access to the EU market because of the transition period.

However, that is set to end on December 31 and negotiations between Britain and the EU over trade have stalled, raising fears that Britain could be heading for a no-deal exit.

“The transition will end at 11pm on December 31,” Mr Woolard said. “We have worked closely with the government and Bank of England to minimise the potential for disruption, and firms, particularly the large ones, have made their own preparations.”

Brussels yesterday gave banks and other trading institutions until mid-2022 to end their reliance on London-based clearing houses for derivatives transactions.

British and European financial regulators agreed to an 18-month standstill arrangement for clearing houses after the transition period ends to avoid chaos in up to £43 trillion worth of derivatives contracts. Brussels wants to move much of the London-based business to the Continent by refusing to allow UK-based clearers to settle under EU laws.

Companies use derivatives to hedge against currency and interest rate risk. Clearers stand between the two sides of a trade, ensuring its orderly completion even if one side goes bust.

Valdis Dombrovskis, the EU financial services chief, said: “This time-limited decision has a very practical rationale, because it gives EU market participants the time they need to reduce their excessive exposures to UK-based CCPs [central clearing counterparties], and EU CCPs the time to build up their clearing capability.”

Similar arrangements were put in place in late 2018 and late 2019, though only for a year each time, when Britain came close to crashing out of the EU.

The FCA announced last week that Mr Woolard will leave next year after failing to succeed Andrew Bailey as the watchdog’s permanent chief executive.

Under Mr Bailey, the FCA faced criticism for its handling of a number of scandals, including the collapse of the minibond seller London Capital & Finance last year, which is expected to leave more than 11,600 savers nursing heavy losses.

An independent inquiry into the FCA’s handling of the episode is scheduled to complete its report in late November.