LONDON – The head of the U.K.'s financial regulator Thursday questioned whether financial firms need to relocate from the City to maintain access to the EU's financial markets.
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Speaking in London, Andrew Bailey, chief executive of the Financial Conduct Authority, defended free markets, saying regulators and authorities should not dictate where companies are based.
The comments from one of the U.K.'s top regulators mark a significant intervention in the debate on the City's future after Brexit. Big financial firms are drafting contingency plans for Britain's future outside the single market.
Many have indicated they could move thousands of staff into the EU once Britain leaves, particularly if the U.K. is unable to secure a trading deal which keeps close ties to the bloc.
J.P. Morgan Chase & Co. initially plans to move between 500 and 1,000 jobs out of London, and bolster its operations in Dublin, Luxembourg and Frankfurt. UBS Group AG and HSBC PLC have indicated they are looking at options for around 1,000 of their London-based staff.
Mr. Bailey questioned whether financial companies required single-market access to have the benefits of free trade with the EU.
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"When I hear people say that firms need to relocate to continue to benefit from access to EU financial markets, I start to seriously wonder, " he said.
"Does Brexit have to mean abandoning the benefits of free trade and open markets in financial services? It should not. Does it require membership of the single market to get the benefits of free trade with the EU? No."
There is "ample evidence that open markets in financial services and free trade can exist safely without common detailed rules and shared regulatory institutions," he said.
Mr. Bailey also discussed the future for the U.K.'s lucrative clearing industry, which has been the subject of scrutiny since the Brexit vote. The EU's executive body has proposed plans that could compel clearinghouses that do a large amount of their business in euros to move into the bloc.
Mr. Bailey said cross-border regulatory cooperation, backed up by joint supervisory oversight is "very clearly preferable to the cost and risk that is introduced by a location-based policy."
Speaking at a separate event on Thursday, London Stock Exchange Chief Executive Xavier Rolet said that the EU has already struck deals with third countries for clearing and that any effort for the EU to cut off London would be "punitively expensive."
Mr. Bailey explained that the FCA is providing technical advice to support the government in Brexit negotiations, while working with regulated firms to understand their plans for the future. It is also conducting a line-by-line review of EU legislation and rule-making to create a regulatory framework that functions the day after Brexit. There would be no retreat from international engagement or cooperation with other regulators, he said.
--Max Colchester contributed to this article.
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(END) Dow Jones Newswires
July 06, 2017 09:02 ET (13:02 GMT)