FCA's Executive Director of International to focus on the response to COVID-19 and Brexit

Nausicaa Delfas, FCA Executive Director of International, delivered a speech focusing on the FCA’s response to coronavirus and Brexit

08 May 2020

This article was written by Ciara Davies.

Ms Delfas outlined the FCA’s response to the pandemic and its work with national and international partners to keep markets open and orderly, help firms continue to operate, protect consumers and small businesses and to maintain high standards of conduct. At the same time, having left the EU in January this year, the FCA and firms need to continue preparations for the end of the transition period, set for 31 December this year.

In its international work on coronavirus, the FCA is looking at the medium to longer term effects of the pandemic. The FCA sees the following emerging trends in international financial regulation:

  • First, while the financial system is more resilient and better placed to deal with the challenges we are seeing today than it was ten years ago, markets and their participants, from the largest globally-active firms through to locally-focused small businesses, will face growing funding and lending challenges as the economic impact of this health crisis is felt over time. The FCA must remain vigilant to any problems in the financial markets and the effect on consumers and the real economy.
  • Second, firms’ operational resilience has come under a new focus. Given the UK’s large global markets and the outsourcing arrangements of many UK firms with significant operations in other countries, it is particularly important for the FCA and the UK in general to identify and address any increased vulnerability to disruption from unexpected events.
  • Third, the interconnectedness of the global financial system highlights that the ability of financial intermediaries to manage their liquidity risks depends on continued credit flows, their ability to raise capital, and a willingness of lenders to keep lending during times of uncertainty. The UK’s position as a hub for financial services exposes the system to global risks, so it is a global ‘public good’ for the FCA, as well as the Bank of England and PRA, to stay ahead of evolving risks to ensure ongoing financial stability and market integrity. 

Ms Delfas notes that coronavirus is likely to have implications for regulated markets in the UK and the regulatory framework in years to come. Cooperation and close coordination with regulators, global standard-setting bodies and EU bodies will help manage the issues that have arisen during this crisis. The FCA has:

  • been engaging closely with many counterparts in the US to coordinate views on the relief measures both the US and the UK have taken, as well as to reach common agreement on the potential implications of coronavirus for LIBOR transition. On LIBOR, FCA published a statement alongside the Bank of England last week reiterating its central assumption that firms cannot rely on LIBOR being published after the end of 2021. There has been no change and that should remain the target date for all firms to meet.
  • been working with the global standard-setting bodies (such as the Financial Stability Board and the International Organisation of Securities Commissions (IOSCO)) to publish coordinated statements to call for markets to remain open and orderly, so that they can continue to perform their essential role in supporting businesses, governments, jobs and the broader economy.
  • worked closely with the ESAs in coordinating the response to coronavirus. For example, the approach the FCA and PRA have taken to regulatory reporting, corporate financial reporting, and accounting treatments of payment holidays are closely tied to EU law and had to be coordinated with relevant EU bodies.

Overall, as here, the focus of the FCA’s international response has involved offering supervisory flexibility where appropriate, delaying some scheduled rule changes which would have placed additional operational burden on firms at this extraordinary time, as well as re-prioritising non-essential supervisory work.

Turning to Brexit, Ms Delfas highlights that the FCA is preparing for all scenarios to ensure a smooth a transition as possible. Actions such as putting in the Temporary Permissions Regimes, onshoring EU rules into UK rules and legislation and making use of the FCA’s Temporary Transitional Power, are examples of preparations that the FCA has made.

However, Brexit related risks remain which will still require multilateral or reciprocal action. Whilst the FCA has put in place transitional regimes for EEA firms, the situation for UK firms in the EU is not the same and their continued operations after the end of the transition period will depend on the regulatory regimes of individual EU member states.

Furthermore, Ms Delfas discusses equivalence, as certain issues can only be resolved through reciprocal equivalence (such as overlapping EU and UK share and derivatives trading obligations). The Political Declaration last year commits the UK and the EU to assessing each other for equivalence by end-June 2020, across all relevant EU and onshored legislations. The FCA continues to work closely with the Treasury on this issue, and will continue to provide technical advice as requested. Ms Delfas says the FCA’s work on this remains on track but it is unclear from her speech whether the end-June 2020 deadline will be met as the FCA is unable to address this alone.

With Brexit providing a set of issues beyond coronavirus, Ms Delfas concludes by reminding firms that they need to continue to take steps to ensure a smooth exit out of the transition period whilst treating their customers fairly and acting with integrity.

Burges Salmon careers

We work hard to make sure Burges Salmon is a great place to work.
Find out more