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Brexit will require complex, multilevel strategy.

As the United Kingdom embarks on the complex, two-year process of negotiating its way out of the European Union, the Financial Conduct Authority is preparing its own parallel, multilevel strategy.

In its recent annual report, the FCA said its response to Brexit will focus on working closely with firms under its remit, advising the U.K. government, liaising with other regulators in Europe, and bringing its own rules and practices into sync with a legal environment that is about to change.

"Next year promises to be busy," FCA Chairman John Griffith-Jones wrote in a foreword to the agency's annual report. In addition to its usual duties of keeping thousands of firms in line and looking out for the interests of consumers, Griffith-Jones wrote, the FCA will be focused on Europe.

"We have a big task ahead of us to prepare amendments to our rules to give effect to Brexit," Griffith-Jones wrote, "and we stand ready to provide whatever additional help may be required by government more broadly. Further ahead we may need to boost our capability to design our own policies independently from the EU."

Elizabeth Budd, a partner at law firm Pinsent Masons in London, said the FCA has been fully involved in the shaping of EU financial services legislation.

The FCA "may not always agree with the outcome," Budd said, "but it's been right at the table throughout the whole process. So the FCA knows the regulations very well indeed."

And while the speed of unfolding events will create pressure for the U.K. regulator, Budd said, "the FCA is actually used to dealing with a lot of pressure. If you look at the last few years, certainly there have been so many changes. The FCA has had to ratchet things up quite a bit. There have been these crunch periods when it's been very time intensive."

Ivor Edwards, a partner in the London office of international law firm Clyde & Co., said the FCA will have to predict what will happen with Brexit. A "hard" Brexit, favored in some quarters of the ruling Conservative Party, would take the country out of the single European Market and give it control over immigration. A soft exit would retain access to the European market and accept the EU principle that EU citizens can move freely throughout the union.

Even in the event of a hard Brexit, Edwards said he would expect the basic capital, solvency and conduct requirements covering insurance companies to "stay relatively the same." Moreover, he said, he expects it would be difficult to change all of that "in one go."

Budd said the FCA has the ability to call in short-term expertise to deal with surges in activity. And given the status of financial services as the "jewel in the crown" of the U.K. economy, she said she expects the FCA to be involved in the government's plan to pursue bilateral trade agreements around the world.

Over the years, Budd said, measures emanating from the EU have become more directly applicable to the U.K. regulatory process. This, she suggested, has created a "bit of a patchwork," where specific rules and regulations might now be found in either the FCA's rule book or the European documents. The FCA's task, she said, will be "to capture the information as it stands on Brexit day, because that will be our law. And we need to crystallize that."

Caption: John Griffith-Jones

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Title Annotation:Industry Updates
Author:O'Connor, Robert
Publication:Best's Review
Geographic Code:4EUUK
Date:Sep 1, 2017
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