Brexit BOOST: Brussels says London will STILL be key finance hub – even after NO-DEAL

Posted on Nov 1 2018 - 4:52pm by admin

European Commission Vice President Vladis Dombrovskis made the commitment to traders across the continent, reassuring them they will be able to use crucial UK derivatives clearing services regardless of the outcome of Brexit negotiations.

But Mr Dombrovskis, who is also responsible for financial regulation, warned the relief allowing EU banks and companies to continue using UK-based clearing houses to process derivatives trades if talks with Brussels collapse, would only be short term.

He told the Financial Times this would also have to linked to a willingness from the UK to remain close to European Union regulatory and supervisory standards.

The European Commission Vice President warned: “Should we need to act, we would only do so to the extent necessary to address financial stability risks arising from an exit without a deal, under strict conditionality and with limited duration.”

This shows the increasing fears from EU regulators over the consequences of a no-deal Brexit and the possible significant impacts on the operation of clearing houses, which have become central to a study financial system since the start of the recession in 2008.

The European Commission Vice resident added any short-term solution would be based on EU market-access rules, which could be used for temporary approvals of UK-based clearing houses, where cheques and bills from member banks are exchanged so only the balances need to be paid in cash.

But in recent weeks, Brexit negotiations appear have stalled again, despite two EU summits hosting leaders from around the bloc to try and thrash out a deal.

Theresa May and Brussels remain at odds over how to solve the Irish border issue, with their ideas of a ‘backstop’ continuing to differ greatly and an agreement no closer in sight.

As fears of a no-deal Brexit grow, European banks and companies could be stopped under EU legislation from using UK-based clearing houses.

These process the majority of the world’s $ 530 trillion market for derivatives contracts, protecting users from the risk of default, as well as any legal and trading problems.

European companies can’t use clearing houses outside the EU unless Brussels recognises them as being properly supervised.

But those based outside the UK don’t possess the scale of the likes of LCH, the British clearing house managed by the London Stock Exchange.

Fears have grown because European banks and non-financial companies make up 14 percent of its interest rate derivatives business.

It follows months of warnings from Europe’s biggest financial institutions that companies would be hit with huge increase in trading costs – or will be unable to hedge their market exposures – without access to clearing houses in London.

The lucrative sector has warned there are no other venues for certain contracts, arguing it can take many months to transfer positions in derivatives portfolios.

In a further boost to UK firms, the Bank of England has suggested it will grant short-term licences lasting up to three year so they can still access EU-headquartered clearing houses in a no-deal Brexit scenario.

This comes as Mrs May and Chancellor Philip Hammond will meet with around 120 business leaders and major investors on Wednesday as they look to calm concerns about a no-deal Brexit.

They will meet executives to discuss Brexit and this week’s annual Budget, which included spending pledges and higher taxes on technology firms.

The Prime Minister’s spokesman said: “It’s part of regular engagement we have with business. It’s an opportunity for them to ask questions of the Prime Minister and, of course, of the Chancellor, about anything they may be interested in.

“Of course, Brexit may well be raised.”

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