FCA Says No Deal Brexit Impact ‘Less Severe’

Amid dire predictions of how a no-deal Brexit could damage the British economy,, the head of the UK’s Financial Conduct Authority (FCA) has said the impact of such a scenario has become “less severe” because of the regulator’s preparations.

“We continue to prepare for a full range of possible outcomes and scenarios, which is what we must do as a public body,” said Bailey in a speech at Bloomberg’s London office. “There is no reason to believe that Brexit should restrict access to financial markets. The UK’s financial markets are – as the IMF has described them – a global public good, and we want to keep it that way.”

The UK government was recently forced by Parliament to release a document known as “Operation Yellowhammer,” which outlines the worst-case scenarios regarding the impact of a no-deal Brexit. The document raised public concern because it warned that riots, food price spikes, and reduced medical suppliers were possible.

Bailey said the FCA’s preparation work has required close involvement with its counterparts in other countries, particularly in the European Union. He said the FCA continues to be an active member of the European Securities and Markets Authority (ESMA), and still works closely with regulatory authorities in the EU27.

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“Wherever we end up, our markets will remain closely linked and we will continue to co-operate closely with our EU counterparts after exit in order to meet our objectives,” he said. “We intend to preserve open markets and not limit access.”

Bailey said that as a result of the progress made in its preparations, the Bank of England has judged that its assessment of the impact of a no-deal scenario has become less severe than it was a year ago.

“This reflects progress across much of the economy,” said Bailey. “Consistent with that conclusion, there is no doubt that financial sector preparations have advanced over the course of this year.”

He added that UK firms have stepped up their preparations, and that UK authorities have made “good progress.”

Bailey said the FCA has concluded new cooperation agreements with the EU markets, and insurance and banking authorities, which will take effect in a no-deal scenario. He said the agreements provide a framework for sharing confidential information, allow UK or EU based firms to delegate or outsource certain activities to firms based in the other jurisdiction, and support future market access and equivalence decisions. He added that the FCA has agreed to changes to 43 non-EU

memorandums of understanding that it needs to amend, though he expects to have all signed by Oct. 31.

In March, the FCA released tips for how companies can prepare for a range of scenarios for when the UK leaves the EU.

“The worst case is what we must prepare for,” said Bailey. “It is what could happen, a scenario not a forecast but real nonetheless.”

Tags: Brexit, Financial Conduct Authority, Pension, UK

Art by John Jay Cabuay

Paul Ballard, chief executive officer and chief investment officer of the Texas Treasury Safekeeping Trust Co., is retiring at the end of the month, CIO has learned.

Ballard, who confirmed the news via email, has been with the sovereign wealth fund since 2003 to see it grow from $70 billion to $80 billion today. Last year, he took home CIO’s 2018 Industry Innovation award for the sovereign wealth fund category.

The outgoing chief is an innovator through and through, running the Lone Star State’s Texas Treasury Safekeeping Trust Company —composed of 11 endowments, two local government investment pools, a treasury pool, a long-term draw-down fund to subsidize Texas water projects, the state’s “Rainy Day” fund, an early stage venture capital fund, and separate funds for various state agencies — with speed, flexibility, and a healthy appetite for risk diversification. He also likes to hire unconventionally to dodge groupthink. His goal is to seek as many different, uncorrelated, independent sources of return that can assemble, to lower the overall portfolio risk but not at the expense of returns. It kept his fund in the positive with about 1% returns for 2018, when more conventionally deployed portfolios returned -1.5% to -2.5%.

“Creative thinking is especially important in an environment of low returns,” Ballard told CIO in his award profile . “Where an abundance of available capital quickly arbitrages away excess returns from new opportunities as they emerge.”

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Ballard also likes to move fast on unconventional strategies such as buying up single-family homes at scale and leasing them as rentals as well as buying sub-prime mortgage securities at depressed prices that could be put back to issuers at prices approaching par. He does this because he believes there is more value to be harvested from “complexity premia” than by “cookie-cutter strategies that are verifiable by easily accessible analytical tools.”

He also gets incredible results. For example, the fund’s endowment produced 112% of the return of a passive 65/35 global stock/bond passive portfolio with less than half the risk over the past five years ending March 31. “I always tell our guys to think of it as ‘your Mom’s money.’”

After ending his professional career, Ballard plans on changing his priorities to “focus more on family and keeping this aging body of mine functioning well” by making both physical and mental fitness a part of his regimen.

“My new job description is going to include gym time, more aerobic exercise, yoga, meditation, grandkids, travel, more time with friends, reading, and learning something new every day,” he told CIO. “The pay sucks, but it sounds like fun to me.”

On December 12, join CIO as we raise a glass to him during our CIO Innovation Awards gala as he presents the Sovereign Wealth award on Dec. 12 to this year’s 2019 Innovation Award winner.

Related Stories:

Paul Ballard Innovation Award Profile

Tags: Paul Ballard, Sovereign Wealth Fund, Texas, Texas Treasury Safekeeping Trust Company