By Elizabeth ADENUGA
The Bank of England ( BoE) and the European Union’s market watchdog say they will work together to avoid financial market disruption involving clearing houses such as LCH in London if there is a no-deal Brexit.
The BoE said it and the European Securities and Markets Authority (ESMA) had agreed on memoranda of understanding regarding cross-border cooperation and information-sharing between regulators for central counterparties and central securities depositories.
Central counterparties or clearing houses ensure a stock, bond or derivatives transaction is completed even if one side of a trade goes bust.
The final leg of a trade, known as settlement, is conducted by Central Securities Depositories (CSDs), such as Euroclear.
The announcement means that stock, bond and derivatives transactions will face no immediate disruption if Britain leaves the bloc on March 29 without a transition deal.
Stock and bond trading platforms such as BrokerTec, MTS, Aquis and Cboe Europe have said they would have new EU hubs ready by March for euro-denominated bond or stock trades currently handled by their London units.
Monday’s pact means the whole chain of a transaction can proceed under a no-deal Brexit.
The pact is one of the elements needed for the EU’s broader decision to “recognise” UK-based clearing houses in order for them to continue serving customers in the bloc from March 30 if there is a no-deal Brexit.
“ESMA aims to complete the next steps for the recognition of the UK CCPs and the UK CSD, and to adopt the recognition decisions well ahead of Brexit date,” ESMA said.
Last week, ESMA and Britain’s Financial Conduct Authority agreed on pacts that would allow cross border activities in asset management, trade reporting and credit ratings to continue in the event of Britain crashing out of the bloc next month.
Similarly, the EU will not reopen its Brexit Withdrawal Agreement, including the controversial Irish backstop, Chief EU Negotiator, Michel Barnier, said on Monday, but alternatives to the backstop could be worked on after Britain leaves.
In a tweet after meeting Dutch Prime Minister Mark Rutte in The Hague, Barnier said: “Full agreement that Withdrawal Agreement cannot be reopened. Backstop (is) only operational solution to address Irish border issue today.
“EU (is) ready to work on alternative solutions during transition.”
Britain is due to leave the EU on March 29 but tBritish lawmakers are refusing to ratify withdrawal treaty due to the backstop arrangements on trade.
This would let it maintain today’s relationship during a transition period until at least the end of 2020 and possibly a further two years.——Reuters
