No-deal Brexit: UK will temporarily protect £817bn daily euro clearing business

London’s clearing business is one the most lucrative part of the financial services industry. Photo: Reuters

The business of euro clearing is one of London’s most lucrative elements to the financial services industry and is under threat of being stripped away after Brexit.

But according to a new technical notice from the UK government, Whitehall will be able to protect the £817bn (€930bn, $1tn) industry temporarily after Britain leaves the European Union on 29 March 2019. That’s even in the event of a no-deal Brexit.

When banks and other financial institutions trade, those transactions need to go through a clearing process before they are settled. London is the international centre for euro clearing, which is the settlement of trades done in euros.

The government is releasing 84 technical notices intended to explain how everyone, from the farmers and financiers, will be affected by a no-deal Brexit, also known as a hard Brexit.

In one of the latest technical notices, the UK government said that it will use legislation under the European Union (Withdrawal) Act 2018, known as the Act, to “introduce a range of transitional arrangements that will maximise continuity and minimise disruption to firms and consumers as we leave the EU, including in the no-deal scenario.”

This includes a Temporary Permissions Regime (TPR) and a Temporary Recognition Regime (TRR).

In the event of a no-deal Brexit:

• The TPR will allow firms and funds that currently use financial “passporting,” which allows UK-based companies to do business in European Economic Area (EEA) nations and within the bloc, to continue to do business as usual for a limited amount of time.

• The TRR will allow relevant non-UK Central Counterparties (CCPs) to continue operating for a limited period after Brexit. CCPs are financial institutions that take on counterparty credit risk between parties to a trade and provide clearing and settlement services.

However, the UK government didn’t specify how long the “limited time period” would be, although it’s likely that it would be within the agreed transition period with the EU. While it’s widely expected that the transition period will be until the end of 2020, reports have surfaced that prime minister Theresa May is looking to extend it to 2023.