Advertisement
UK markets closed
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • FTSE 250

    19,884.73
    +74.07 (+0.37%)
     
  • AIM

    743.26
    +1.15 (+0.15%)
     
  • GBP/EUR

    1.1716
    +0.0022 (+0.19%)
     
  • GBP/USD

    1.2625
    +0.0003 (+0.03%)
     
  • Bitcoin GBP

    55,410.92
    -551.36 (-0.99%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • DOW

    39,807.37
    +47.29 (+0.12%)
     
  • CRUDE OIL

    83.11
    -0.06 (-0.07%)
     
  • GOLD FUTURES

    2,254.80
    +16.40 (+0.73%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     
  • HANG SENG

    16,541.42
    +148.58 (+0.91%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • CAC 40

    8,205.81
    +1.00 (+0.01%)
     

£26 trillion of derivatives at risk if EU does not act to keep markets going after Brexit

EU companies have signed £26 trillion of derivatives contracts which are due to run after Brexit - but which could fall apart if the EU does not approve their continued validity - Bloomberg
EU companies have signed £26 trillion of derivatives contracts which are due to run after Brexit - but which could fall apart if the EU does not approve their continued validity - Bloomberg

Britain has acted to make sure EU companies and banks with derivatives contracts in the UK can still use them after Brexit - but the EU has not reciprocated, putting a cloud over £26 trillion of contracts.

“Material risks remain” in the process, the Bank of England’s Financial Policy Committee (FPC) said, with barely a year left before the UK is due to leave the EU.

The warning covers existing contracts which will still be in place on Brexit day one, and comes before considering any new derivatives put in place after the UK leaves the EU.

At a glance | Passporting banks
At a glance | Passporting banks

The UK Government has also committed to let UK banks continue using EU-based counterparties for clearing services, though the EU has not agreed to let its firms access UK banks.

ADVERTISEMENT

“Since November, in the UK, progress has been made towards mitigating the risks of disruption to financial services,” the FPC said, in a report published a week before the next European Council meeting.

“Nonetheless, material risks remain, particularly in areas where actions would be needed by both the UK and EU authorities.”

Last year the Bank published a list of nine important risks facing the UK and eight facing the EU.

It believes the UK has taken steps towards addressing six of them, while the EU has made progress on two areas.

The UK and the EU have both moved to make sure a transition period is put in place, and both are making sure alternatives are in place for banks which have until now accessed each others’ markets through the ‘passport’ system.

What is euro clearing and why does it matter to the City?
What is euro clearing and why does it matter to the City?

Both parties also still need to take action on access to the central counterparties which clear derivatives contracts - this could affect an additional £70 trillion of trades, including £27 trillion which mature after March 2019.

Neither have cleared up the future rules on the delegation of fund management across borders, though the UK will allow EU funds to be marketed to UK investors.

EU action is also lacking in the insurance market - its citizens risk losing access to their current £55bn of insurance policies after the UK leaves the union.

Britain has pledged to let EU insurers offer products to UK customers after Brexit.

No progress has been made by either side towards the rules on the flow of data across the post-Brexit border.