The Bank of England (BoE) has doubled down on its call to the European Union (EU) to put measures in place to allow European banks to access UK-based clearing houses after Brexit, in order to avoid financial market chaos which could damage firms across Europe.
City lobby groups echoed the bank’s plea yesterday pushing for the EU to stop using clearing as a “bargaining chip in a game of high-stakes political poker”, which could result in the stability of the global financial system being damaged.
Central clearing counterparties (CCPs) are firms that balance risk between the sellers and buyers in a deal, and ensure that transactions are completed if a party defaults.
However, if the EU does not take any action, European clearing members will be breaking the law if they access UK CCPs post-Brexit, then forcing euro-denominated clearing contracts to be closed or transferred from London to the Eurozone.
Currently EU-based firms have derivative contracts worth a notional £69trn with UK CCPs, £41trn of which matures after Brexit, the BoE’s financial policy committee said. It further stated that moving these contracts out of the UK could cost European businesses €22bn (£19.3bn) a year.
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