HM Treasury regards the prospect of the UK leaving the European Union without a deal as unlikely and said it has measures in place which mean firms don’t need to make plans for it happening.
The government said this is because it is "onshoring" financial services legislation, or converting existing European rules into British ones.
A paper released by the Treasury dealing with its response to Brexit said: "The government is continuing this work to ensure that the UK will have a functioning legislative and regulatory framework in all scenarios.
"As part of this, HM Treasury intends to legislate to provide the financial services regulators with powers to introduce transitional measures that they could use to phase in any onshoring changes."
It added: "The government is continuing this work to ensure that the UK will have a functioning legislative and regulatory framework in all scenarios. As part of this, HM Treasury intends to legislate to provide the financial services regulators with powers to introduce transitional measures that they could use to phase in any onshoring changes."
The government said financial services firms should plan on the basis that a deal is agreed, and that a transition period will begin in March 2019 and continue until 31 December 2020.
But in the event that such a transition period doesn’t happen, the Treasury will use the Withdrawal Agreement and Implementation Bill, the piece of legislation that formally transmits any deal into UK law, to delegate to British financial services regulators the power to implement a system which means the financial services industry would continue to operate.
This means the Financial Conduct Authority will be given greater powers to address "deficiencies" in its rulebook which might arise as a result of a no-deal scenario.
The Treasury’s comments echo those of the FCA, which said it has a plan ready in the event of a no-deal Brexit.
Christopher Wollard, a senior director at the regulator has blasted the approach of the EU to the negotiations, which he said "makes it very hard to pin down" a regulatory framework for financial services after Brexit.
The Treasury has said it intends to lay the first statutory instruments relating to the financial services sector, which would create a temporary permissions regime for firms passporting into the UK and give the FCA more powers, "soon".
More statutory instruments relating to financial services will follow "over the autumn into early 2019".
david.thorpe@ft.com
