The U.K.'s asset managers and private banks need to outline their plans on dealing with Brexit to regulators in a "credible" way to limit the effect on clients, and should also think hard about cyber crime and money laundering risk, according to the Financial Conduct Authority.
Britain is negotiating a deal with Brussels regarding a transition period to allow preparations to be made ahead of a future U.K.-EU relationship, in light of its vote to leave the bloc. U.K.-based firms face the prospect of losing so-called passporting rights, which allow them to freely conduct business around the EU.
"Where there will be a clear and material impact to your business model and operations, we want to see credible plans to ensure that you minimize disruption to your customers through the transition process," Nick Miller, the FCA's head of investment management supervision, told a private banking conference in London on Feb. 22.
There will be little opportunity for arbitrage, as the FCA will continue working with overseas regulators after Brexit, he added. EU regulators have stressed that token "letterbox" firms, which might exploit regulatory arbitrage to delegate large amounts of business back to London, will not be tolerated.
"We are absolutely committed to continue to engage, as we do day in, day out, with the European regulators and other European authorities," Miller said. "We indeed believe that level of engagement is agnostic of jurisdictions. We will absolutely continue to engage with [financial regulator] BaFin in Germany as we do with the [Securities and Exchange Commission] in the U.S."
Echoing previous comments by FCA head Andrew Bailey, Miller also said the regulator is absolutely committed to the benefits of open financial markets. Deep and equitable capital markets are a "global public good" and there is no reason why that level of integration should be disrupted by Britain's withdrawal from the EU, he said.
Cyber risk, money laundering
Wealth managers and private banks also need to be aware that they are exposed to a higher risk of cyber attacks than other financial companies, because the data they store on wealthy individuals is more attractive to hackers and cyber-terrorists, Miller said.
"We think that cyber is a key priority for firms and we expect them to take that seriously," he said, noting that the FCA wants top-level management to be involved in decisions about cyber security, testing computer systems and training staff.
At the same time, the sector as a whole needs to improve its money laundering controls, Miller said.
"Controls are not good enough across the sector," he said. "That is not to say that none of the firms have vigorous controls, but there are institutions where this is the case. This is a very important priority for the FCA. You should be robustly challenging your systems and controls for [know your customer] and source of funds."
The FCA will publish the conclusions of an ongoing review into the U.K. asset management industry in late March.