A senior member of the City watchdog has warned a no deal scenario as mooted by the Prime Minister yesterday could be "messy" for financial services.
Christopher Woolard, executive director for strategy and competition at the Financial Conduct Authority (FCA) called on negotiators to begin discussing a transitional arrangement as soon as possible to avoid the "cliff edge" scenario.
Appearing in front of a Lords committee, Woolard called for both sides to agree “heads of terms” as soon as possible so that businesses can plan for the future. FCA boss Andrew Bailey has previously warned that the City could face major upheaval unless a transitional agreement is in place before the end of the year.
One of the FCA's concerns is whether consumers would have access to European financial compensation schemes after the UK leaves the EU.
The fifth round of talks between the UK and EU are taking place in Brussels this week. Although it is generally thought that May's Florence speech gave some momentum to negotiations, Brussels has repeatedly warned London not to expect to progress to the second phase of discussions, in which trade and transition can be examined, until the basic "divorce bill" has been agreed.
During the same hearing, Woolard stressed that a post-Brexit Britain would not be able to attract business through a "bonfire of regulation".
He said: “This is a system of international standards where money tends to have a flight to quality," adding that deregulation would only "come back to bite people years later when the compensation scheme kicks in".
Woolard added: “This phrase of ‘Singapore-on-Thames’ gets used a lot and clearly the Singaporean authorities have an approach to how they attract international business but the thing I have learnt when dealing with their regulator is that their system of regulation is pretty much the same standard you would find in the US or Hong Kong or here.
“Of course there are differences in the nuances between different systems but I don’t think there is a really established financial services regulator around the world who would argue that having a low standard of consumer protection is a good way of having a solid basis for having an industry to go forwards.”
On the plus side, that meant the EU was unlikely to diverge from existing rules or cut its own regulations to undercut the UK, Woolard said, although acknowledged there was still a risk it could happen. "There clearly is a risk if we are not at the table," he said.
“Clearly when [new rules are] developed in the context of 28 member states there will be pieces we would deal with in a different way but the underlying principle will be the same.”
Woolard revealed that the FCA is planning to “scale-up significantly” in order to deal with the implications of Brexit.
The regulator will not "take its foot off the pedal" because of the extra work of Brexit, but will have to think about "the order" in which it does things, he explained.