Watchdogs across the UK and the EU27 must work together on a coordinated approach to regulation post-Brexit, regardless of what deal is secured by the government, a report seen by City A.M. cautions.
The research by international law firm CMS and think tank the Legatum Institute warned that, if international regulators fail to see eye-to-eye once the UK left the EU, firms might find themselves answerable to multiple sets of rules while trying to do business across borders.
"We say that post-Brexit it makes sense for EU regulators to place substantial reliance on the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) to regulate UK financial institutions doing business around Europe," said Paul Edmondson, CMS' head of financial services. "Similarly, it makes sense for the PRA and FCA to rely on their EU counterparts to regulate EU incorporated firms doing business in the UK."
Edmondson added: "If no such agreement can be struck by the UK and the EU it would still be possible for member states to adopt some co-ordination with the UK under their retained national competences and national regulatory regimes, but this would be limited. An EU wide solution is to be preferred."
The report also urges those in the industry to move away from comparing possible sets of rights with each other, such as discussing the benefits of passporting compared with equivalence, and instead focus on developing the new relationship between sector bodies which will need to be formed following Brexit.
The findings come less than a month after Theresa May triggered Article 50, officially starting the UK's withdrawal process from the EU.
In January, the Prime Minister gave a landmark speech outlining how the UK would be pushing for "a bolder embrace of free trade", but warned she was more than happy to walk away from the negotiating table with no deal rather than accepting a bad deal.