Brexit deal must consider financial stability risks, warns FCA's Bailey

During a speech at the Future of the City dinner, Bailey said that if the 'status quo' changes post-Brexit, "this would have serious adverse consequences".

Bailey said that unless action is taken, a wide range of financial contracts between UK and EU counterparts could cease to be serviceable, in particular in insurance and derivatives. This, he said, could affect up to £26 trillion notional of derivative contracts and at least 30 million EU and 6 million UK insurance policyholders.

To maintain financial stability, Bailey stressed the importance of transitional arrangements as well as 'consistent' and 'mutually agreed' solutions.

He said: "We need by the end of March a joint commitment by the political authorities to a well-defined implementation or transition period which will create the space and support for the regulators to work with firms and political authorities to put practical solutions into place.

“It can be done, and I think there is a growing consensus on both sides that it must be done. I sense this view increasingly taking hold from my discussions around Europe.

“But it needs support in the form of a timely commitment to a transition agreement which will allow the regulators to get on and tackle these issues.

“A joint agreement to get on with this is in the interest of everyone involved. And it will give much-needed assurance to firms and markets as well as regulators. And, it will give much needed assurance to firms and markets as well as regulators.”

Bailey also welcomed the Government's plan to bring forward secondary legislation to ensure that contractual obligations can continue to be met in the UK.

He said interim permissions to deal with the risk that firms are left without authorisations without due warning are a "sensible way to underpin financial stability".

Bailey concluded: "As an impartial technician, I cannot stress too much that we need these arrangements in place, and co-ordinated solutions are in the best interests of both sides. We are ready with sleeves rolled up to get on and put these arrangements in place."