UK financial regulators seen endorsing Brexit transition deal - industry

(Adds details)

By Huw Jones

LONDON, Feb 27 (Reuters) - Britain's financial regulators are expected to formally endorse a Brexit transition deal in a bid to reassure firms concerned about disruptions to their operations after March 2019, the head of the Association of British Insurers (ABI) said on Tuesday.

Britain and the European Union are negotiating a transition period of about two years that will follow Britain's departure from the bloc in March 2019. Under such a deal, many of the terms and conditions of EU membership will continue to apply.

A deal in principle is anticipated by the end of next month.

Banks and insurers have said they might not be able to rely on such a political deal as it will not be formally ratified by governments until October or later, which would be too late for them to avoid making adjustments to their operations.

"A transition deal needs to start with a political agreement in March and then we quickly need the regulators to confirm that we can rely on it," the chair of ABI and chief executive of British insurer Aviva UK, Andy Briggs, told Reuters.

He said he expected British regulators to issue a formal endorsement, speaking after a meeting with Financial Conduct Authority Chief Executive Andrew Bailey and Katharine Braddick, director general of financial services at the finance ministry.

"There is a good constructive dialogue," Briggs said, referring to industry talks with the regulators.

A banking sector source said lenders were looking to the Bank of England's Prudential Regulation Authority and not just the FCA to issue a statement on transition as well.

"I would expect banks to continue to implement their plans based on March 2019 exit unless they can get some comfort from the regulators," the source said.

However, even if a transition deal is agreed and endorsed by British regulators, banks in London face pressure from EU regulators to file licence applications for new hubs in bloc.

British regulatory endorsement of a transition deal also carried risks for the industry and regulators, financial sources said.

Some regulators worry that if they endorsed a transition deal that later collapsed or was amended, it could leave financial firms in legal difficulties, the sources said.

Demands of customers might ultimately determine what banks and insurers do, as they demand reassurance that their business will be transacted safely at a new hub after Brexit rather than relying on a transition agreement, the sources added.

(Reporting by Huw Jones Editing by Edmund Blair)