European Union regulators have recognized the need to cooperate with their UK counterparts to avoid disorderly markets if no agreement is reached on the terms of the UK’s departure from the EU, Britain’s financial watchdog said on Thursday.
Andrew Bailey, chief executive of the Financial Conduct Authority, said he welcomed comments on Wednesday from the EU’s top securities regulator that memorandums of understanding (MOUs) with British regulators were now in the works.
The MoUs would be in place before Brexit to ensure that regulators could continue to exchange information, critical for spotting and dealing with rulebreakers, and supervise cross-border activity, said Steven Maijoor, chair of the European Securities and Markets Authority (ESMA).
Maijoor also signaled a need to ensure that clearing of euro-denominated derivatives by UK-based clearing houses can continue after next March.
“I am very encouraged by what Steven said yesterday. It’s a recognition on both sides that we are working together and we will put in place what is needed to make this as smooth a transition as it can be,” Bailey told a City & Financial conference.
Markets are worried that a hard Brexit would disrupt insurance policies and derivatives contracts worth up to 29 trillion pounds ($37.67 trillion) between customers in the EU and Britain, the region’s biggest financial market.
The EU has been saying it is up to the private sector to deal with those issues, but Maijoor’s comments on cooperation signal a shift to a more helpful stance.
Bailey said preparations for Brexit were entering an intensive phase to ensure an orderly departure, though firms are not relying on this.
Banks, insurers and asset managers are opening hubs in cities like Paris, Frankfurt, Luxembourg or Dublin by March to ensure continued service to EU customers.
Ireland’s central bank said on Thursday it was processing over 100 Brexit-related applications from London-based companies examining moves there.
ESMA and French regulators said this week that conditions for allowing foreign financial firms who get access to the bloc’s market directly from London need tightening ahead of Brexit .
“I hope we don’t end up with a world where this is viewed as an opportunity to close markets and grab business. It will not end successfully,” Bailey said.
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