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EU’s Lack Of A Brexit Plan Could Hurt Derivatives Market

Financial analysts in the United Kingdom (UK) and European Union (EU) have speculated and provided multiple reports over the last 2 years of the potential consequences of a hard Brexit.

Brexit is scheduled to take place on March 29 and the Bank of England (BoE) is confident that it has put in place measures that will protect the UK from the ramifications of Brexit but isn’t very confident that the EU has taken the same precautions.

The BoE’s financial committee met on 09 October and confirmed that the UK had in place process and procedures to prepare for a worst case scenarios resulting from the March 29 Brexit but threw shade at the EU and stated that they were not doing enough to prepare for the repercussions and that could have a significant impact on the £41 trillion derivatives market.

The financial committee urged EU authorities to swing into action and put in place better preparations in the limited time that remained. The BoE highlighted the fact that EU companies will struggle on their own to mitigate and deal with the risks association with the disruption that will occur in cross-border transactions.

BoE Confident Of Their Own Preparations

There are a couple of reasons why the financial committee is so confident and to some extent cocky with their assumptions. The UK Parliament is in the process of reviewing regulations that will permit financial firms based in the EU to continue offering financial services to UK citizens. The BoE has also confirmed that British banks have more than enough cash in reserve to address any repercussions that arise from Brexit.

In a statement, the BoE said

The UK banking system now has the capacity to absorb, in addition to a disorderly, cliff-edge Brexit, further misconduct costs and stresses that could arise from intensifying trade tensions and a further sharp tightening of financing conditions for emerging markets.

The BoE wants the EU to take similar steps and make things clear regarding issues such as cross-border transaction clearing and insurance contract continuity. The EU Commission responded by stating that it had issued a notice to all financial stakeholders and pushed them to prepare for Brexit.

The European Central Bank did not debunk the statement from the BoE. The Central Bank said that a tough Brexit could have an impact on its derivatives market but left it up to the private sector to make preparations for Brexit.


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