AFME highlights no-deal Brexit risks
16 July 2019 London
Image: Shutterstock
A no-deal Brexit is likely to have a significant impact on the financial services sector, despite the substantial work done to mitigate risks, according to the Association for Financial Markets in Europe (AFME).
In a paper highlighting the risks, AFME cautioned that the equivalence decision for UK central counterparties (CCPs) is currently due to expire on 30 March 2020.
AFME noted that unless certainty is provided as to the extension of recognition, UK CCPs might be required to start offboarding processes for EU27 members by the end of 2019.
Elsewhere in the paper, AFME outlined its concern that EU investors may still not be able to access major pools of liquidity for a number of EU27 shares and be unable to execute trades at the best available price.
AFME recommended that the UK and EU27 authorities put in place the necessary arrangements to ensure continued access of members from both UK and EU27 to infrastructures under their supervision.
Meanwhile, the risk of disruption to EU and UK markets because of overlapping and contradictory derivatives trading obligations has not been addressed.
In the absence of equivalence, conflicting EU and UK trading obligations would prevent EU27 and UK counterparties from trading in scope derivatives with each other on either EU or UK venues, AFME explained.
AFME urged authorities to continue to work together and explore all avenues to avoid overlapping trading obligations and minimise disruption.
Oliver Moullin, managing director, Brexit at AFME, commented: “In light of the ongoing political uncertainty, banks are continuing to implement their contingency plans for a no-deal Brexit scenario.”
“However, there are remaining risks from a regulatory and operational perspective where further clarity is still needed to minimise disruption to markets and businesses across Europe.”
“These include issues such as the trading obligations for shares and derivatives, clarifying contingency measures and providing clarity on the renewal of equivalence for UK CCPs. We hope that regulators in the EU27 and UK continue to work together to address these.”
In a paper highlighting the risks, AFME cautioned that the equivalence decision for UK central counterparties (CCPs) is currently due to expire on 30 March 2020.
AFME noted that unless certainty is provided as to the extension of recognition, UK CCPs might be required to start offboarding processes for EU27 members by the end of 2019.
Elsewhere in the paper, AFME outlined its concern that EU investors may still not be able to access major pools of liquidity for a number of EU27 shares and be unable to execute trades at the best available price.
AFME recommended that the UK and EU27 authorities put in place the necessary arrangements to ensure continued access of members from both UK and EU27 to infrastructures under their supervision.
Meanwhile, the risk of disruption to EU and UK markets because of overlapping and contradictory derivatives trading obligations has not been addressed.
In the absence of equivalence, conflicting EU and UK trading obligations would prevent EU27 and UK counterparties from trading in scope derivatives with each other on either EU or UK venues, AFME explained.
AFME urged authorities to continue to work together and explore all avenues to avoid overlapping trading obligations and minimise disruption.
Oliver Moullin, managing director, Brexit at AFME, commented: “In light of the ongoing political uncertainty, banks are continuing to implement their contingency plans for a no-deal Brexit scenario.”
“However, there are remaining risks from a regulatory and operational perspective where further clarity is still needed to minimise disruption to markets and businesses across Europe.”
“These include issues such as the trading obligations for shares and derivatives, clarifying contingency measures and providing clarity on the renewal of equivalence for UK CCPs. We hope that regulators in the EU27 and UK continue to work together to address these.”
NO FEE, NO RISK
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