Bank of England warns Brexit poses “substantial risk of disruption” to cross-border clearing of financial contracts.

The European Commission has proposed supervision rules that could force foreign clearinghouses to locate the clearing of derivatives denominated in EU currencies inside the European Union. The Bank of England told the Financial Policy Committee that clearing houses must come up with contingency plans.

The Bank of England said “There remained a substantial risk of disruption of cross-border clearing activity”. “The bank was continuing to engage financial market infrastructure and firms on their contingency planning.” 

Global banks operating from the UK must be prepared that they will not be permitted to clear euro denominated swaps after Brexit.

The Bank of England also warned that a number of European firms operating in the U.K. were “not sufficiently focused” on addressing the Brexit risk of disruption to wholesale-banking services. According to the Bank of England these firms account for about 10 percent of lending to U.K. companies.

Dr. Ray NultyComment