IGTA Journal - Summer 2018

2 Leaving the single market means separate supervisory regimes Two years on from the Brexit vote, we can only assume that cross-border economic relationships look set to face noticeable headwinds going forward. For the financial markets, this means one thing: the financial services passport is dead. This immediately raises the question: could it be feasible to have something like a diet version of the financial services passport, or to perhaps create a range of exceptions? The clear answer to this is that there cannot be, nor will there be, any permanent exceptions. Institutions that relocate operations to the EU or expand their presence here following Brexit will have to comply with the same high supervisory standards that apply to the institutions that already operate here. This answer is underpinned by the fundamental belief that supervisors must be capable of intervening in the business activities of institutions operating within their own jurisdiction at all times. This is a sine qua non , and it should not be up for grabs. At the same time, this credo should not prevent us from thinking about whether, and if so where, we can cushion any additional operational outlay caused by time pressure. A transitional period, at least as outlined in principle in March, could help with this. It would lower the long-term costs of exit by allowing firms to reflect on their options and decide which markets they want to operate in and which organisational structures would best allow them to strike the right balance between compliance and profitability. However, we cannot count on there being a transitional period right now, since negotiations could break down at any time. 3 Supervision of future third-country institutions: requirements and cooperation But whether or not there is a transitional period, one thing is certain: what standards apply to the future third-country institutions will ultimately boil down to how they are treated by the relevant supervisor after Brexit and how the authorities will work together in this context. To shed light on this issue, the SSM has already adopted a whole bundle of supervisory policy stances. However, in the SSM, our baseline assumption is still the worst case, ie a no-deal scenario. And judging by recent developments in the United Kingdom, this seems more than appropriate. With the next meeting of EU heads of state or government fast approaching, it doesn’t look like solutions to a number of quite fundamental issues concerning the future partnership will be found any time soon. The border with Northern Ireland is just one of these sensitive topics. This means that a huge package of agreements would have to be hammered out at the next summit but one in October, which would then, in turn, have to be reviewed by the parliaments in the shortest of timeframes. And even if this all went smoothly, it would be no more than a framework that would have to be fleshed out in detail to forge a future treaty – which would itself take many years. And because a breakdown in negotiations – and therefore a hard Brexit IGTA eJournal | Summer 2018 | 23