for the best? of course not. we have to manage fragmentation constructively – we have to find innovative approaches for a new reality. but let me make one thing very clear : this must not result in a race to the bottom. fragmentation should not lead to competition through lax regulation or supervision. such policies may seem to be in the best national interest, but ultimately they represent special interest politics. we must expose these policies for what they really are : threats to financial stability. and that is why politicians, firms and supervisors have to deliver on three crucial points : first, a transition agreement ; second, pragmatic supervisory cooperation ; and third, managerial innovation. let me take each of these briefly, starting with the transition – or implementation phase, as it is now called. 2 / 4 bis central bankers'speeches 4 the need for a transition phase a transitional deal between the uk and the eu was agreed yesterday on negotiators ’ level. during the implementation phase, which is to last until end 2020, eu rules would continue to apply in the uk and the exact terms of the future partnership shall be worked out. it is of utmost importance in order to give firms more time to adjust to the new realities. it furthermore can reduce the long - term costs of brexit. firms can weigh up their options and decide which markets they want to serve and with which organisational design. they have now time to re - arrange their organisations on the basis of an analytical and forward - looking approach, rather than an approach of simply minimising uncertainty. the inefficiencies and potentially higher costs of financial intermediation can be reduced with this agreement. i am confident that both sides have apparently recognised the importance of a transition phase in making brexit less abrupt and, in the long run, less painful. despite all this positive news, it is still too early to lay back. many issues are still to be discussed and the transitional period is still not fully guaranteed. it remains to be subject to a successful conclusion of an article 50 - deal within the next twelve months. for instance, the irish question – i. e. keeping the border between the republic of ireland and northern ireland invisible – needs to be resolved. hence, the recently widely used phrase that “ nothing is agreed until everything is agreed ” still holds true. 5 managing financial firms in a fragmented world but even after a transition phase, brexit and fragmentation would mean two things. first, future access to financial

the transition to a new regime as smooth as possible ; they will also, in the long run, try to reduce unnecessary inefficiencies where possible. in december last year, the pra2 published a draft proposal for a post - brexit supervisory approach. i very much appreciate the spirit behind this approach. it reflects a solution - oriented, pragmatic, yet stability - oriented stance. in the same vein, the ssm has developed quite pragmatic, cooperative policy stances on many of the relevant issues. i am confident that this cooperative style can make an important contribution towards a smooth transition. 7 conclusion ladies and gentlemen, greater fragmentation will most likely be an inevitable result of brexit. instead of wishing to do away with what is beyond our control, we should set about finding pragmatic and at times innovative solutions to managing brexit and the ensuing fragmentation constructively. however, such a constructive approach will take time, because it means many complex answers have to be developed – which is why we need a sufficiently long transition phase. and i have to say that i was really facilitated well and truly relieved when i heard the news yesterday that a transition phase had been agreed, because this could make brexit less abrupt and, in the long run, less painful. during that phase, supervisors will have to find solutions that enhance financial stability without undermining economic efficiency. and financial firms will have to find innovative and pragmatic ways to comply with the new demands while maintaining their efficiency and profitability. for all the bullet points on our to - do list, we need an honest dialogue – if unnecessary problems and burdens arise, firms and investors should always come and talk to us. brexit is both too complex and too important to muddle through. thank you for your attention. 1 comprehensive economic and trade agreement between canada and the eu. 2 prudential regulatory authority. 4 / 4 bis central bankers'speeches