Brexit Risks Blocking Loan Access for Europe Borrowers, LMA Says

(Bloomberg) -- Borrowers in Europe’s $1 trillion loan market may be at risk of losing access to their money because of the U.K.’s looming departure from the European Union, according to the Loan Market Association.

Brexit may sever U.K. banks’ passporting arrangements, jeopardizing their ability to operate across Europe and hindering cross-border money transfers, said Nick Voisey, managing director of the LMA, which represents more than 630 organizations including banks and investment companies. It could also hamper enforcement of European loan contracts because most are written under English law, he said.

The loss of passporting “may result in loans becoming unworkable,” Voisey said. “A borrower may not be able to draw down funds from an existing loan in some European countries, if the loan originates from the U.K.”

Loans are just one area of concern for the City of London, Europe’s financial hub, amid uncertainty about the future of trade relationships following the U.K.’s March exit from the EU. The confusion has hammered foreign investment in U.K. financials services and spurred banks to open units elsewhere in Europe to safeguard access to the single market.

The lack of definite decisions on Brexit “leads to a difficult situation for banks with respect to the allocation of their resources,” said Reinhard Haas, Commerzbank AG’s head of debt capital markets for loans.

Half of 30 European loan bankers surveyed by Bloomberg News said Brexit is one of the most pressing issues facing the market.

The LMA has held meetings with lawmakers, central-bank staff and other officials across Europe to highlight the problems, Voisey said. The group is also trying to “Brexit-proof” loan agreements amid continued uncertainty about the shape of the final U.K.-EU trade accord, he said.

The U.K. has advocated a “mutual recognition” system that would allow London-based financial services staff to sell stocks, bonds and other financial products across the EU following Brexit. The EU instead proposed a so-called equivalence system, in which the bloc would grant selective access to certain lines of business on a case-by-case basis. That access would also be revocable.

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