Funds Congress Backs Mutual Regulatory Recognition Post-Brexit

MRR, which was first proposed by the International Regulatory Strategy Group, would ensure the quality of regulation and supervision is comparable across the EU and UK post Brexit.

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Under such an arrangement, regulatory priorities would be near identical and there would be a mechanism in place to manage ongoing alignment or divergence over time.

Speaking at Funds Congress 2018, hosted by Dechert, PwC and Carne, CEO of TheCityUK Miles Celic said the current system of "passporting", whereby UK asset managers can easily access European clients, "is not an option" as it is "attached to membership of the single market, which it seems very clear we are not going to be members of".

He added: "MRR is the next best thing. It says these regulatory and supervisory bodies, which at the moment are completely aligned, would remain so."

Celic said MRR is a "mutually beneficial solution" for the UK and Europe, as jobs that leave the UK - if the country does not get a deal that works - are unlikely to go to EU. Instead, they could move to New York and Asia, thereby hitting Europe's total financial workforce and expertise.  

He added the only alternative to MRR is the so-called equivalence regime, whereby the EU would allow a watered-down form of passporting.

However, he said the equivalence regime "is political  and is not based on regulatory decisions, so it can be withdrawn at 30 days' notice, only covers about 25% of what passporting currently covers and leaves the UK as a rule-taker".

"We would say ‘no' if equivalence was the only offer on the table," he said. 

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Catherine McGuinness, policy chairman of the City of London Corporation, agreed rule-taking is "not an option".

She said: "We have had such an influence on the ways [financial] rules have been shaped and made, and the industry will expect us to carry on having that influence.

"The biggest problem we face is politics is driving all of this, when what we really need is pragmatic solutions that enable a global sector to go on serving their clients. 

"As a result, regulators will have to come out in support of the sector and ensure them they will not push them as hard for contingency plans as they said they would."