In a speech at the City Banquet held at Mansion House Sam Woods, deputy governor, prudential regulation and chief executive officer, Prudential Regulation Authority (PRA) said: ‘Contingency planning is a sliding scale of increased commitment, investment and momentum through time. It is much more prudent and prosaic than hovering over the relocate button or rushing to the exit door.’

However, he went on to say that the greatest concern currently was uncertainty over the shape of the proposed transition or implementation period, which he said was vital to mitigate any risks in March 2019 when the UK leaves, and to help firms to adjust to the new relationship in an orderly way.

‘If we get to Christmas and the negotiations have not reached any agreement on this topic, diminishing marginal returns will kick in. Firms would start discounting the likelihood of a transition in the central case of their planning,’ Woods said.

Woods cautioned that re-structuring by firms will in general increase their complexity, saying: ‘I struggle to see an outcome in which banks and insurers do not get harder to supervise and harder to resolve for all involved.’

He also forecast, in the absence of any clarity on a transition deal and depending on how negotiations proceeded, the PRA was expecting a large number of financial services companies  based in the EEA to be applying  for authorisation on the assumption that access akin to their current passporting rights to operate in the UK will fall away.

‘Time and negotiations will tell whether that assumption will prove correct. If it is, authorisations are going to be a significant operational challenge for the PRA,’ he warned.

Andrew Bailey, chief executive of the FCA also spoke at the event, and re-iterated the regulator’s intention to publish its pension strategy later this year, setting out for the first time the FCA’s assessment of the major regulatory issues in the sector. He singled out retirement income products, drawdown and non-workplace pensions as areas where the FCA may be considering further review.

Bailey said the other major area of attention is the advice market, where the FCA has concerns about a gap in the market for accessible, low cost advice for smaller investments.

‘As part of this, it is important that we do all that we can to provide clarity on the boundary between advice and more general guidance. I strongly agree that the more uncertain the boundary, the more advisers will rationally aim to keep away from going nearer to it, something that is not helpful. We are currently consulting on proposed changes to our guidance on this boundary to give firms more clarity,’ Bailey said.

He also indicated the regulator’s concerns over unarranged overdraft charges, which he said were ‘high and complex, often higher than the payday cap’.

‘We wonder about the role of a so-called unarranged product in today’s banking market and are assessing whether fundamental change is needed to this aspect of current account services,’ Bailey said.

Sam Woods’ speech is here.

Andrew Bailey’s speech is here.

Report by Pat Sweet