The UK cannot remain "blindly aligned" to European Union financial regulations after the Brexit transition period, regulators have said, but "political decisions" could see the country’s market access to the bloc rescinded in just 30 days.
Senior Financial Conduct Authority (FCA) and Bank of England (BoE) figures told the House of Lords' EU Financial Affairs Sub-Committee on Wednesday (12 February) that the UK should be granted the status of "equivalence" - the process by which a jurisdiction's regulatory regime is deemed compatible with that of the EU - from the moment the transition period ends at the end of this year, thereby maintaining market access to the bloc.
However, they said regulators must have scope to amend UK rules where they see fit, without the need for "a metaphorical punch up" and the threat of equivalence being ripped away at short notice.
Asked about the potential for and impact of a politically motivated decision to strip the UK of equivalence, deputy governor for prudential regulation and CEO of the BoE's Prudential Regulation Authority Sam Woods agreed "it is something to be concerned about because plainly it can happen".
He explained that the 30-day notice period the EU has for removing equivalence is so "abrupt" as to make it "less valuable than it otherwise would be".
Woods said that "two to three years is a normal [timeframe] for something like this" and urged for the notice period to be extended in such a scenario.
Outgoing chief executive of the FCA Andrew Bailey (pictured), who is poised to succeed Mark Carney as governor of the BoE, explained that "it is absolutely essential" that the regulator has the "ability to amend and adapt our rulebook", and that must come under consideration in decisions about equivalence.
He added: "We are very strong supporters of open financial markets, both regionally and globally. It would be hard to imagine [the UK is not equivalent on day one] as the approach has essentially been to copy out the [EU] rule book.
"But what is the scope for divergence? We [need to] create mechanisms… for regulatory cooperation. [But] if we end up in a metaphorical punch up every time with a threat to withdraw equivalence [where there is deviation] that process just will not work properly."
Woods also noted the dangers of staying "blindly aligned" to EU financial regulations, adding that under such a scenario the regulator could not have "confidence about our mandate of providing financial stability" as a result of the size of the UK financial sector and how it differs from that of the EU.