Implications of Brexit on SMCR
One can’t talk about financial regulation and the banking sector in the UK without considering Brexit and its implications on the market. The financial services market has been cast into a regulation limbo since Brexit was announced last year. With Brexit negotiations looming one can only speculate on the outcome.
The Brexit Question
The media and financial markets have largely reacted based on the implication that Britain will be faced with a ‘hard Brexit’ as they leave the single market. Theresa May has repeatedly stated on record that the UK’s intention is to leave the single market, ‘we do not seek membership of the single market. Instead we seek the greatest possible access to it through a new, comprehensive, bold and ambitious free trade agreement.’ (Guardian). The question of who will regulate and from where which looms over the UK at the moment and has created this current situation of regulation uncertainty. It looks like the British government will carry over many EU regulations in a number of industries so as to minimize disruption. This process of repatriating of EU laws into UK legislation has been titled, the "Great Repeal Bill" and will likely result in a hefty bill to the taxpayers.
Access to the single market
Access to the single market is a key factor for many of the financial services firms located in the UK. Banks and fund managers in particular value single market access as they see the need to conduct business across the EU’s 28 member states as integral to their business. So much so that the Guardian recently quoted a potential loss of 30,000 finance jobs as a result of Brexit, with many financial service firms looking to relocate elsewhere in the EU.
Race for British jobs
A race has begun amongst the EU member states to attract these relocating financial jobs and businesses. It is being suggested that many EU neighbor states will look to lower their corporation tax in a bid to attract businesses leaving the UK post-Brexit. The EU has taken a stance against this. The European Securities and Markets Authority (ESMA), Europe’s main financial regulator, plans to release a formal guidance report in the coming months. “The general opinion will consider how national regulators should handle day-to-day supervision of relocated operations”. (Reuters).
Implication on SMCR
One question which arises is, how the new SMCR regulation will fair in this period of regulatory uncertainty? One potential problem which could arise is a situation where the FCA tries to hold a bank’s senior manager accountable when the person in question has moved out of the UK post-Brexit and now resides in a different country and thus jurisdiction. It remains to be seen how the FCA and PRA will handle a situation like this. Only time will tell.
*An official document from the FCA is expected out in September this year.
This is the final part of a 3 part series on SMCR. Click here to read part 1; 'What is Senior Managers and Certification Regime?' or part 2; 'Extension of SMCR'
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