European banks warned on Monday that the European Union and the UK must come to an agreement on post-Brexit financial access by the end of September if serious disruption is to be avoided, especially in light of the coronavirus crisis.
The Association for Financial Markets in Europe (AFME), a lobby group which represents major banks and other market players, said that the pandemic had the potential to disrupt the post-Brexit planning and preparedness of financial firms who may need to relocate their operations elsewhere once the UK leaves the bloc in January.
The finance industry is hoping that the UK’s regulatory regime will be granted so-called “equivalence” by the EU, meaning that investment firms and clearing houses based in the country could avoid having to set up a separate base in the bloc.
While equivalence would not cover all financial services firms — and would be inferior to the current level of access enjoyed by UK-based institutions — it is considered crucial for London’s finance sector.
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“COVID-19 has the potential to disrupt Brexit planning including impacting client readiness, as well as potentially affecting the ability of firms to relocate staff to other jurisdictions,” AFME said on Monday.
If a deal on equivalence is not reached between the EU and UK by the end of September, AFME said that customers would likely be forced to move their derivatives positions out of London before the end of the Brexit transition period in December.
“In practical terms, three months may not be sufficient time for the larger clearing members to close out their positions and make alternative arrangements,” it said.
Even if it were feasible for clients to do so, such a shift would involve “significant” risks to market and financial stability in Europe, the lobby group warned.
“This is particularly important in the context of the fast-evolving legislative agenda in the EU and the UK with a number of significant financial services files being proposed, due to be implemented, or under review in the second half of this year and the first half of 2021,” AFME said.
EU chief Brexit negotiator Michel Barnier last week criticised the UK’s approach to negotiating access for its financial services firms, accusing prime minister Boris Johnson’s government of demanding many of the benefits of single market access.
“The UK and the EU will be two separate markets — two jurisdictions,” Barnier said.
“And the EU must ensure that important risks to our financial stability are managed within the framework of our single market.”