In a speech to the World Federation of Exchanges, Steven Maijoor, the Chair of the European Securities and Markets Authority (ESMA), called for transitional provisions to allow EU firms continued access to UK-based clearing houses (CCPs) in the event of a no deal Brexit.
Commenting on the development, Miles Celic, Chief Executive Officer, TheCityUK, said,
This call for a temporary permissions regime is an important step forward and one which is long overdue. While the industry is taking every action to prepare for the unwelcome possibility of a no deal Brexit, issues like contract continuity in insurance and clearing require additional support from regulators and legislators.
“We now need regulators on both sides of the Channel to work together towards a broader and fully joined up approach to no-deal planning. This is critical to ensuring wider European financial stability and for providing certainty to customers and clients”
About contract continuity:
The failure of cross-border financial contracts post-Brexit is posing a significant risk to financial stability and the personal finances of millions of people.
Thirty-six million insurance policyholders across the UK and EEA, and £26 trillion of outstanding uncleared derivatives contracts could be impacted if the UK and EU fail to agree on a solution.
Firms are urgently taking steps to mitigate the impact on customers and clients. However, without regulatory support across Europe it is highly unlikely that this will be adequate to fully address the problem in the time that remains.
A paper published by TheCityUK – ‘Continuity of cross-border financial contracts post-Brexit’ – makes clear that the only workable solution to this problem is a coordinated UK/EU response involving both the public and the private sectors.
TheCityUK argues that the full range of affected cross-border contracts must be grandfathered, either for a time-limited period, or potentially until maturity. This would protect UK and EEA policyholders and institutions and avert potential widespread financial losses.
The grandfathering of contracts could be achieved in three different ways:
- A bilateral agreement between the UK and EU, supported by regulatory co-operation.
- Separate regulatory action or legislation in each jurisdiction, consistent with the approach agreed between the UK and EU.
- Inclusion in the EU Withdrawal Agreement alongside appropriate regulatory backing for such a political agreement.
Any of these options would need to be underpinned by ongoing supervisory cooperation between the UK and the EU regulators beyond Brexit.