The Bank of England’s deputy governor will tonight urge UK and EU politicians to agree transitional arrangements for financial services by Christmas, as regulators push for continued close cooperation after Brexit.
Sam Woods, who leads the Prudential Regulation Authority (PRA), is expected to warn that firms will be forced to start putting their plans for a “cliff edge” scenario into action if there is no commitment to the transitional deal by the end of the year.
Speaking to City luminaries at an annual banquet at Mansion House, Woods will echo his host, the City of London's Lord Mayor, in calling for urgent action. He will say: “Most important is some form of transition or implementation period.”
Last week Prime Minister Theresa May said she will push for a trade deal which ensures mutual market access for EU and UK firms – an unprecedented objective which will need cooperation from the EU.
Woods will say the government’s recent commitment to a transition is welcome, but will warn of “obvious risks to EU financial stability” if the EU did not also back an implementation period.
On top of that will come a strong plea for both sides to continue close cooperation, as regulatory complexity is likely to increase considerably after the UK leaves the EU.
“I struggle to see an outcome in which banks and insurers do not get harder to supervise and harder to resolve for all involved,” he is expected to say.
Woods will also announce the PRA is concerned about the risks of British banks with operations in other jurisdictions with different capital regimes.
The PRA will, subject to consultation, make firms explain how they use so-called “double leverage”, when a parent company issues debt (rather than safer but more expensive equity) to cover a subsidiary's capital requirements from foreign regulators.
The PRA could raise capital requirements for British firms in the future if it deems they are running the risk of not servicing that debt, or if servicing the debt risks destabilising the subsidiary, Woods will say.
Woods will speak after Andrew Bailey, the head of the Financial Conduct Authority (FCA), who is set to outline the regulator’s focus on risks around consumer borrowing as well as the changes to financial services faced by older people.
In a wide-ranging speech, Bailey will reject the idea of capping credit card charges, saying it was impractical, but is set to reaffirm the FCA’s intention to examine unarranged overdraft fees, saying it is “assessing whether fundamental change is needed”.
On pensions the FCA will publish its strategy later this year for the first time, Bailey is expected to say.