ESMA and BoE Cooperate to Overcome no-deal Brexit Consequences

February 5, 2019 | AtoZ Markets - As the business and markets news platform report the European Union and The Bank of England (Boe)-the central bank of the United Kingdom of Great Britain and Northern Ireland are set to cooperate on oversight of clearinghouses to avoid disruption in the cross-border derivatives market in case of no-deal Brexit.

The new deal comes as a relief for the UK financial institutions

The agreement between BoE and the European Securities and Exchange Bureau (ESMA) has become a relief for the UK clearing houses. All that is, they have to decide whether to transfer operations with derivatives worth billions of euros from the UK. For example, the LCH  company that processes about 90 percent of its derivatives in euros, will go beyond the legal system of the block as soon as the UK leaves the EU.

Without an agreement between the Bank of England and the European regulator, clearing houses may not receive some regulatory approvals, leading to operational problems. For example, European banks face much higher capital costs when they use it to process their transactions. According to the new arrangement between ESMA and Boe, the European regulators will ensure that important clearing houses apply block rules and adhere to policies applied by the European Central Bank.

A message from the European regulator states that "the EU will have legal instruments to supervise these firms." The ESMA also stated that it "intends to take further steps before the UK exits the EU at the end of March."

No-deal Brexit causes British investors concerns

Through the British clearing houses daily passes about 440 billion pounds, nominated in euros. Such procedures are possible due to the so-called “passport” rules, which allow clearing houses to sell their services freely in the rest of the EU, as well as provide European companies with access to the UK. The rejected Brexit transaction allows international financial services to operate continuously from March to late 2020. But after Teresa May again failed to agree with the Parliament on the procedure of the UK leaving the EU, this will lead to the fact that customers from the EU will be cut off from British market operators unless measures are taken in case of unforeseen circumstances.

European investors are concerned about the deprivation of the British financial markets because all other financial centers in Europe are smaller. The UK financial services sector is trying to find a way to preserve the existing trade flow after the Brexit. The new Boe and ESMA agreement might be a safe boat for the UK investors and financial organizations.

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