The UK and European Union must work together to reduce the risk of financial instability that Brexit may pose, Andrew Bailey has warned.
The chief executive of the FCA called for both sides to unite now to mitigate the immediate ‘cliff edge risks’ once Britain finally leaves the European Union.
Speaking at City Week’s ‘The International Financial Services Forum’, he said: "We have to work together now to mitigate the immediate cliff edge risks. Now is the time for the UK and European Union authorities to come together and work on the solutions to reduce the risks to financial stability that Brexit could pose.
"This has global implications, not just for the UK and EU, so it is important that we get this right."
He added the FCA is keen to work closely with the European Securities and Markets Authority (ESMA) and national European Union regulators to continue to enhance the stability and effectiveness of global markets.
He used his speech today (24 April) to welcome the agreement at the European Council on 23 March 2018, which stated there should be a transition or implementation period.
He said: "UK withdrawal from the European Union without such an agreement would create risks for both the UK and the EU of a so-called cliff edge - which we should all want to avoid.
"There are two reasons in my view why we need a transition or implementation period. First, we need more time to mitigate these cliff edge risks – call that the transition reason.
"Second, it makes far more sense for firms and authorities to put into effect their plans only once they know what the steady agreement looks like – call that the implementation reason."
He added dealing with the transition will allow the UK to collectively focus on a "steady-state" future.
He said: “On day one of Brexit the UK and the EU will have deeply integrated financial markets with aligned regulatory rules. That is a benefit to both sides. Moreover, the benefits of open markets are worth preserving. And we can do it.
"We can together build an approach that supports mutual recognition of each other’s standards to support cross-border business. This is the best way to maintain financial stability."
He dismissed the argument that the best way to preserve financial stability is to become less open, to limit cross border flows of business, to restrict domestic parties from having access to overseas markets, and ensuring activity takes place in the home jurisdiction.
He said: “Let me reiterate, to do this means restricting the activity of parties in the EU.
"I say this because I have no doubt that the City of London will remain open to business, so the question is whether EU parties will be allowed to do business here, not whether we will allow it.
"In my view, closing access to financial markets which are global not regional will undermine not enhance financial stability. It will reduce the potential for financial markets to support growth and trade, impair innovation and limit the ability to manage risk, and thus make the overall financial system more fragile."