The City could benefit from a “lower burden” regulatory regime when the UK exits the European Union, the top financial regulator said today.
Setting out his vision for the future of UK financial regulation, Financial Conduct Authority (FCA) head Andrew Bailey said he thought the UK and EU would take contrasting approaches to regulation post-Brexit, based on their different traditions.
“Brexit will clearly be a defining factor,” he said. “I do think that, left to our own devices, the UK, with its common law system and large, global financial markets, would construct financial conduct regulation in a rather different way.”
Bailey said that post-Brexit the UK would continue to look to improve onshored EU legislation on a “‘same outcome, lower burden basis”.
He said the different traditions of the English common law system and the European civil law system, informed the difference in regulatory philosophy.
“The common law approach strengthens the need for outcomes-based equivalence rather than a rules-based approach – in other words, the outputs of regulation not the inputs,” he said.
UK-based financial services firms are expected to access the EU market under the equivalence regime, where the EU allows foreign firms access if it deems the rules of their home market are aligned closely enough with its own.
Equivalence needs “common agreement on [the] rules of the game,” Bailey said.
But he said the substance should be based on outcomes such as consumer protection, market integrity, financial stability and competition, rather than prescriptive rules
“It is not about whether we each approve of the other’s rules but whether they achieve the common substantive outcomes,” he said.
He also called for a dispute resolution mechanism for dealing with disagreements or the withdrawal of equivalence on either side.
“A conclusion that the other party does not meet these objectives must be open to reasonable challenge and therefore with appropriate warning, and any resulting implementation must also be consistent with those objectives,” he said.
Iain Anderson, executive chairman of public affairs firm Cicero, said: “He is pointing to principles that emerge from experience in public policy rather than inflexible rules – I would give a good nod to that – the approach allows firms to navigate whatever is ahead of them.”
Stephen Jones, chief executive of industry body UK Finance, said: “We strongly support Andrew Bailey’s vision for the future of financial regulation in the UK, with a coordinated regulatory approach centred on competition and delivering the best outcomes for consumers.”
Bailey said he was sceptical about calls for a light-touch regulatory regime, aimed at boosting the UK’s competitiveness on the world stage.
“Before the financial crisis, the Financial Services Authority (FSA) was required to consider the UK’s competitiveness, and it didn’t end well for anyone, including the FSA,” he said.