EU Finance Chief soothes fears.
The European Commission vice-president in charge of financial services has said EU companies will be able to access UK derivatives clearing houses on a temporary basis in the event of a no-deal Brexit.
According to the Financial Times, Valdis Dombrovskis said the EU has “all necessary tools to act quickly in order to ensure no disruption in central clearing. The time remaining until March 30 2019 is sufficient in this respect”. The Latvian politician’s remarks will come as a relief to financial market participants, which have warned of bleak consequences if access to UK clearing houses is not catered for. However, the FT said he emphasised the strictly short-term nature of the relief in the event of a failure in Brexit negotiations. Dombrovskis and the European Commission were contacted for comment. Catherine McGuinness, Policy Chairman at the City of London Corporation, said:
“Disruption to clearing houses in the event of a no-deal Brexit would pose a significant threat to financial stability…” The commitment by Valdis Dombrovskis to maintain access for UK clearing houses on a temporary basis is, therefore, a welcome step in the right direction with 150 days to go to Brexit.”
The Bank of England warned earlier this month that £41tn of derivatives contracts are at risk from Brexit if Brussels does not intervene. The BoE warned that it would be costly for EU companies if they were forced to move derivatives clearing from the UK at short notice. Banking and finance groups from Germany, Italy, Ireland, Denmark, the Netherlands and Sweden united with the International Swaps and Derivatives Association, the lobby group for the over-the-counter derivatives market, to warn of the operational challenges of migrating thousands of contacts to EU-recognised clearing houses. The clearing houses in the UK are the London Stock Exchange Group’s LCH, Intercontinental Exchange’s ICE Clear Europe and the London Metal Exchange’s LME Clear. They account for the vast majority of derivatives trades cleared in Europe.
Earlier this month, Jon Cunliffe, deputy governor of the Bank of England, told Parliament’s Treasury Committee to expect the EU to take action to prevent disruption to the derivatives market in the event of a no-deal Brexit.