Britain's EU divorce settlement preferable to no-deal Brexit: FCA

LONDON (Reuters) - Britain's draft divorce settlement with the European Union is preferable to a no-deal Brexit even though this would leave the country without a say over EU financial rules, the country's finance industry watchdog said on Thursday.

The Financial Conduct Authority's report was requested by parliament's Treasury Select Committee to inform lawmakers ahead of a vote on the Brexit deal and declaration on future trading relations with the EU on Dec. 11.

The finance ministry and the Bank of England published their own views on Wednesday.

"An exit without agreement would carry much higher risk and carry significant uncertainty for us and for firms," the FCA said in its report.

"Against that background, and viewed through the lens of our statutory objectives, the draft Withdrawal Agreement and the outline political declaration are preferable steps."

A no-deal Brexit would mean financial firms losing unfettered access to the EU's investors, forcing them to relyon World Trade Organisation rules and on EU or national member state rules for non-EU states.

"Consumers could also potentially be affected, either directly if firms are unable to continue providing services or indirectly as a result of wider economic or market disruption," the FCA said.

"Over time market fragmentation could have a harmful impact on financial services' markets more widely, through reduced competition and increased costs for customers."

But the impact would also depend on how much contingency planning Britain and the EU have done for a no-deal Brexit.

An implementation period from March to the end of 2020, as outlined in the Withdrawal Agreement, would avoid "cliff-edge" risks and smooth the UK's transition to a new relationship with the EU, the FCA said.

(Reporting by Huw Jones. Editing by Jane Merriman)