The Financial Conduct Authority has stressed it would prefer an implementation period rather than exit the European Union without agreement next March, claiming the former carried less risk to the financial services industry.
In a letter to Nicky Morgan MP today (29 November), Andrew Bailey, chief executive at the FCA, said the regulator believed a ‘no-deal’ Brexit would create "significant challenges and risks" in the market.
Mr Bailey said this risk would manifest itself in terms of firms' readiness, potential market disruption and insufficient public-policy solutions put in place on the side of the EU.
The correspondence accompanied the FCA’s impact assessment of the EU Withdrawal Agreement, requested by Ms Morgan in June.
Mr Bailey said whilst the regulator had taken "significant" steps to mitigate "cliff edge risks" associated with a ‘no-deal’ transition, risks still remained that could not be addressed at this time.
The analysis stressed as a public body the FCA took no position on Brexit and did not advocate a particular approach to the UK’s withdrawal, but its assessment was made to ensure the relevant markets function well.
In light of the regulator’s statutory objectives, Mr Bailey said: "It is better to have an implementation period in place which provides a bridge to the new relationship between the UK and EU so that there is greater clarity over future regulatory arrangements."
However, Mr Bailey advised there was "good reason" to keep any implementation period to a minimum, claiming uncertainty remained as to the role of the UK in the governance of the pipeline of EU legislation and rule-making during the period.
On Sunday (November 25) the leaders of the 27 European Union member states endorsed the Prime Minister's Brexit withdrawal agreement and approved the political declaration on future relations between the UK and the EU.
But the deal has proven controversial and several members of the Conservative Party have called for Mrs May to stand down as Prime Minister, with some claiming it gives the EU too much power over the UK and others saying the opposite.
Meanwhile, at the request of Ms Morgan, the Bank of England yesterday published its own analysis of the Withdrawal Agreement.
The Bank suggested a transition or no-deal scenario would see GDP 10.5 per cent lower over a five-year period than would otherwise have been the case.