The U.K.'s Financial Conduct Authority is preparing to set up a "war room" to cope with the fallout of a no-deal Brexit on March 29, if the U.K. leaves the European Union without a withdrawal agreement and British financial services firms lose automatic access to EU markets.
The U.K. is set to quit the EU at 11 p.m. GMT on Friday, March 29, and if the country does so without an agreement on the terms of its withdrawal, it faces a so-called hard Brexit. This would see U.K.-based banks unable to use the "passporting" rights that allow any bank based in the EU to operate across the bloc. The government's proposed withdrawal agreement provides for a transition period until December 2020 when U.K. firms will continue to have access to the EU, but this has yet to win support in Parliament.
Regulators have taken extensive measures to prepare for a no-deal situation, with the U.K. introducing a temporary permissions regime that allows EU banks to continue to operate in the country in the event of no deal. The financial services contracts regime also allows EU firms operating in the U.K. to run off their regulated business if the country leaves the bloc without agreement. Some, but not all, EU states have put in place similar arrangements for U.K. firms, but there is no similar pan-European arrangement on the issue.
The FCA said it needed to ensure that it was in close contact with banks and other financial services firms affected from March 29 and would be operating a "war room" staffed with advisers over the weekend following the U.K.’s departure from the EU. The aim is to allow the FCA to keep in close contact with both the financial services firms affected by a no-deal Brexit and its fellow regulators at the Bank of England and the Prudential Regulation Authority, along with the Treasury. However, the regulator has no plans to embed staff with banks as a contingency measure.
"As part of our planning for all scenarios we have put in place contingency measures in the event of a hard Brexit. We will have teams in place throughout the weekend of exit to monitor the situation and respond as needed, working closely with the Treasury and the Bank of England," said an FCA spokesman, who declined to be named.
The FCA has set aside £30 million to prepare for Brexit. A report earlier this year from consultancy EY, based on the public declarations of 222 U.K. financial services firms, said companies have moved almost £800 billion in staff, operations and customer funds to Europe since the Brexit referendum in 2016, with 55% of banks intending to relocate some operations to the EU. It also noted that total assets for the U.K. banking sector alone amounted to £8 trillion.
A report from think tank New Financial published on March 11 said 5,000 staff could either move to the EU or be hired locally outside the U.K. as a result of Brexit. Estimates for the number of jobs affected by Brexit have varied considerably since the 2016 referendum, with Xavier Rolet, then-CEO of the London Stock Exchange, estimating more than 200,000 jobs would disappear in the U.K., while the Bank of England has previously said 5,000 might go from London by March 29. New Financial said 275 firms have moved or are moving some of their business, staff, assets or legal entities from the U.K. to the EU to prepare for Brexit.
The British Parliament is set to vote on whether to back the government's proposed withdrawal deal on March 12, and if the proposed deal is defeated, then a series of votes are due on whether the U.K. should quit the bloc without a deal and on whether the deadline for the country to leave the EU should be extended.