Rare Brexit Agreements on Finance Help Prevent Market Chaos

(Bloomberg) -- With the U.K. deadlocked over Brexit, financial regulators scored a rare accord aimed at preventing chaos in markets should Britain leave the European Union without a deal.

Authorities in the U.K. and the EU redoubled efforts in recent days to ensure trillions of euros in transactions can continue unimpeded. The Bank of England reached an agreement with the European Securities and Markets Authority that will enable derivatives to be handled at clearinghouses run by London Stock Exchange Group Plc, Intercontinental Exchange Inc. and London Metal Exchange.

On Tuesday, ESMA and the U.K. Financial Conduct Authority said they would take additional steps to prevent disruptions in equity and fixed-income markets in the event of a no-deal Brexit. EU data-reporting requirements under the revised Markets in Financial Instruments Directive, or MiFID II, won’t apply to the U.K. following Brexit, requiring ESMA to adjust how it determines which stocks and bonds must be traded on electronic trading platforms.

Paris-based ESMA said it would need to suspend publication of some market data after March, and warned that the regulator’s own technology systems could face disruptions. MiFID’s goal of increasing market transparency would probably take a hit, ESMA warned, because fewer financial contracts would probably be available for trading on EU platforms in the immediate aftermath.

The regulators’ efforts are one of just a handful of examples of cooperation to resolve issues that may arise after March 29, the current date set for Brexit. They contrast with saber-rattling by politicians on both sides and an impasse in the U.K. Parliament.

The European Commission, the EU’s executive arm, has stressed that contingency planning must in principle be unilateral and limited to protecting the bloc’s interests, to avoid giving the U.K. an easy way out.

The agreements reached so far “alleviate some of the immediate concerns” for financial firms, said Karel Lannoo, head of the Centre for European Policy Studies in Brussels.

Concern is increasing across Europe that Britain will leave the EU with potentially dire economic consequences after Prime Minister Theresa May failed to win U.K. parliamentary support for a Brexit deal she spent a year and a half negotiating.

One Less Brexit Worry: Business as Usual for Derivatives Traders

Talks between financial regulators, which went slowly for months, started picking up at the end of last year and are now in full swing.

The Bank of England and market authorities have said the financial system has the capital and resources needed to handle a no-deal Brexit after putting big banks through stress tests based on the most pessimistic economic assumptions.

Financial industry groups from Dublin to London welcomed the agreements, while pressing authorities to do more.

Santander U.K. Plc Chair Shriti Vadera said Jan. 29 in Brussels that banks need more clarity from regulators across Europe about the market for non-cleared derivatives and noted “a patchwork of national measures across the EU which are all slightly different from each other, which clearly is problematic.”

The EU commission has started working with the bloc’s member states to coordinate policies with the aim of ensuring that financial contracts struck directly between firms in the U.K. and the EU can continue uninterrupted. Germany and France are among countries that have taken steps at the national level to handle risks from non-cleared derivatives.

To contact the reporters on this story: Silla Brush in London at sbrush@bloomberg.net;Alexander Weber in Brussels at aweber45@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell, Paul Sillitoe

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