On July 1st, Nausicaa Delfas, Executive Director of International and member of the Executive Committee at the FCA, delivered a speech for a series of webinars offered by City & Financial Professional Virtual Roundtables. The focus of the speech homed in on Brexit, Covid-19 and a suitable Financial Regulatory System as the UK enters unchartered waters moving forwards.
The unchartered waters, or new era, defer to systematic changes brought about by Brexit and Covid-19, which have shifted behaviours in both the technological and societal sphere. On Brexit, Delfas said we must be prepared for whatever comes our way, and on Covid-19, Deflas explicated that the regulatory agenda is moving from crisis response mode to now supporting economic recovery. She stressed non-banks as critical to enabling recapitalisation. Growth and recovery following the Covid-19 pandemic are key.
Brexit & The Transition Period
On January 31st, 2020 the UK left the European Union. The transition period will end at 11pm on December 31st, 2020. Delfas outlined several preparations the FCA is working on to limit disruption to the UK’s FinTech market. First, both the Government and the Bank of England are ensuring a robust legal regime on day one of Europe free UK, by onshoring EU law to the UK statute book and to our rule book.
Second, the FCA have already entered into a number of MoUs with EU and non-EU authorities to enhance supervisory cooperation. Third, technical advice and technical support has been offered to the UK concerning its trade negotiations with both EU and non-EU countries. Finally, temporary permission has been granted to allow EEA firms to continue providing services and funds to continue to be marketed in the UK once passporting ends – but only provided that relevant notifications are made. Delfas stressed, “my message to you is that we all need to continue to prepare for a range of scenarios, to be ready for the end of the year”.
Delfas did note, however, that “other risks are outside of our control to mitigate. For instance, where EU Member States had individually passed laws to smooth a possible ‘hard’ exit, some of these laws have now lapsed and there is no guarantee that new laws will be issued”. After the transition period, Delfas stated simply that, “our approach going forward will be guided by our continued commitment to the highest international standards, and by what is right for the UK’s markets, building on the strengths of the existing UK regulatory and legal system”.
The Impact of Covid-19
Delfas applauded the coordination with partners not only between the UK and the EU, but globally also. She outlined, “we have shared insights on market developments and coordinated responses, for example with the Financial Stability Board, IOSCO and ESMA”. Although the market is more resilient than 10 years ago, reviewing exactly what happened at the beginning and during lockdown phase are important. According to Delfas, “we need to focus on developing a complete picture of how all elements of the system – banks, non-banks, and market infrastructures – are interconnected, and how they function under extreme stress”.
Nevertheless, Covid-19 has demonstrated the stringent value technological capabilities bring in overcoming many of the main challenges brought by the pandemic. In particular, “digital innovation may help address issues from the longer-term decline in the use of cash, increase the availability of mass-market financial advice, and reduce the need for manual processes in businesses”. In addition, sustainable finance is also a priority. The focus of the FCA is on well-functioning markets, including clear disclosure, and internationally they are co-leading the work on climate-related financial disclosures at an IOSCO Task Force.
Delfas concluded:
“we are going through a period of tremendous change, and there remain many challenges to overcome. But we also have tremendous opportunities: the opportunity to maintain high standards in our regulated markets, delivering the right outcomes for consumers; to tackle the challenges of Brexit and Covid-19 in an agile way, and for the long term”.