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UK regulator seeks Brexit bridge this year to avoid cliff-edge
[LONDON] Banks and asset managers need certainty this year on how much time they'll have to transition to the post-Brexit world to avert "regrettable" decisions made in haste, according to Andrew Bailey, head of the UK Financial Conduct Authority.
Bailey said in London on Thursday that regulators should strive to preserve as much open access and free trade as possible as the UK withdraws from the European Union, and that transitional arrangements are necessary to allow for a "smooth path" to the new landscape.
"It would be regrettable all round if we put firms into this position where they feel they're in a bind because they have to do practical implementation of contingency planning before they know the context in which they're going to be working in the future," Mr Bailey said.
"We need it to be known during the course of this year."
The financial industry has made a transition one of its top priorities in Brexit talks to avoid a cliff-edge effect whereby EU rules cease to apply in the UK before new arrangements are in place.
With the Brexit starting gun fired earlier this year, firms have begun activating plans to move operations from London.
Deutsche Bank AG is preparing to move large parts of the trading and investment-banking assets it currently books in London to its home town of Frankfurt in response to Brexit, people familiar with the matter said.
"Early agreement on transition is the single most important thing for the industry. It is where we should apply the strongest political pressure," John McFarlane, chairman of Barclays Plc, said on Thursday.
"Leaving it to the end of the negotiation will be worse for everyone. Clarity needs to emerge soon."
So far, the EU has taken a hard line in the discussions and said that any transition arrangement will depend on progress in withdrawal talks.
"Once we have a clearer picture of the form this new relationship will take, we will be able to discuss the possibility of transitional measures," Michel Barnier, the EU's Brexit negotiator, said on Thursday.
Mr Barnier said "the real transition period" began on March 29 2017, the day UK Prime Minister Theresa May triggered the process of withdrawal.
Mr Bailey also called on regulators to coordinate oversight and base their decisions on the equivalence of regulations rather than on where firms are based.
He highlighted clearing of euro-denominated contracts, which has emerged as a key battleground in Brexit discussions, with EU officials calling for greater oversight of the business that largely takes place currently in London.
"What we should not do, in my view, is use Brexit as an excuse to restrict the ability to have open markets and therefore freedom of location," Mr Bailey said.
He welcomed a recent proposal from the European Commission, the EU's executive arm, on clearing that allows for "joint supervisory oversight and therefore is not a pure location policy in the sense of saying 'you've got to move.' "
As the two sides continue negotiations, Mr Bailey said it is important for the UK to preserve its influence over the development of regulations.
"I don't want to be in a situation, or be responsible for a situation, where we become a rule taker," Mr Bailey said.
"Much of the body of European rule-making reflects, I think, the approach taken by successive UK governments over the years which is, if this is going to affect us, we've got the biggest financial market, we'd better be in there shaping what comes out."
Mr Bailey said that the EU officials "always say, 'you guys have your fingers all over this stuff."'