Andrew Bailey, chief executive of the Financial Conduct Authority, said City regulators needed time to sort out issues including the validity of derivatives contracts, clearing financial trades and cross-border flows of data.
There is a range of operational issues arising from Brexit which, if not tackled, will create financial stability risks and issues for both the UK and the European Union, Bailey said at a dinner in London on Monday evening.
The FCA chief executive said the financial risks were symmetric in impact and so were in the interests of both the UK and the EU to tackle. I think this point is increasingly understood on both sides.
It is not a matter of scaremongering to get negotiating advantage.
Bailey said that when the UK leaves the EU, a wide range of financial contracts between UK and EU counterparts would cease to function unless action is taken. This might involve UK citizens no longer being covered by insurance policies taken out with EU insurers.
He added that the least good approach would be to expect firms to come up with solutions, since this would be expensive, messy, prone to risk and protracted.
A second-best, but distinctly inferior, way forward would be the UK and EU authorities to enact solutions at the official level but independently.
The best solutions are mutually agreed and enacted so that they are consistent. And to achieve this, we need by the end of March a joint commitment by the political authorities to a well-defined Implementation or Transition Period which will create the space and support for the regulators to work with firms and political authorities to put practical solutions into place, Bailey said.
It can be done, and I think there is a growing consensus on both sides that it must be done. I sense this view increasingly taking hold from my discussions around Europe.