While the FCA’s executive director of international - who was appointed earlier this year - told a Bloomberg / The City UK conference today that she expects a “good outcome” from the Brexit negotiations she said the FCA was braced for a no-deal Brexit, although she warned this could cause problems, particularly in passporting.

She said: “There are “cliff edge” risks we face in relation to contract continuity. Our analysis suggests that these primarily relate to insurance contracts and derivatives.

“The FPC has estimated that 10 million UK policyholders and 38 million EEA policyholders could be affected; and that around a quarter of derivatives contracts - £26 trillion worth - could be affected.

“Our view is that where any of these contracts extend beyond March 2019, the UK and the EU must, together, create contractual certainty, either through an implementation period or by some other means.

“If this is not achieved, there is a risk that some of these contracts could not be appropriately serviced – in concrete terms, insurers may not be permitted to pay out claims on policies, and derivatives users may not be able to manage the risks of their positions. This would not enhance the integrity of markets, nor serve the interests of consumers, either in the UK or in the EU.”

She stressed that the FCA had no opinion either for or against Brexit but was working hard to ensure a smooth transition took place and said the transition period post Brexit in March 2019 would be very helpful.

She told the audience: “Our starting assumption is that a transition or implementation period, from March 2019 until the end of December 2020, will form part of the final agreement with the EU. We think this is a good thing for both sides. It will allow more time to prepare, smooth the transition, and it is something we have been calling for, for some time.

“However, we know that this is part of the overall negotiations and therefore we must prepare for all scenarios, including the possibility of a “no-deal” or “hard” Brexit at March 2019. And that is what we are doing: across the FCA, together with colleagues from the Bank of England and the Government, we have been working to develop a number of safeguards and contingencies, in the event of a hard Brexit, to ensure that “day 1” works smoothly.”

One mechanism to ensure a smooth exit is the Temporary Permissions Regime to give EEA firms and funds the ability to continue to operate in the UK.

She explained: “A further key safeguard we have been working on is the Temporary Permissions Regime (TPR), which will allow EEA firms and funds using a UK passport to continue to operate, without needing to apply for authorisation at this stage. At the end of last year, HMT announced that they would legislate to enable this if necessary.

“The TPR will allow for business as usual for EEA firms and funds passporting into the UK. As at April this year, more than 8,500 financial services firms were registered as passporting into the UK, and nearly 6,000 out of the UK.

“Those that receive a temporary permission will be able to enter into new business and fulfil existing contracts with UK customers for a defined period after exit day, while seeking full authorisation.”