EU Has a Plan to Prevent No-Deal Brexit Chaos, Euronext CEO Says
(Bloomberg) -- Regulators have a plan to ensure continental firms can keep using financial services provided from the U.K. in the case of a no-deal Brexit, according to one of Europe’s biggest exchange operators -- a reassurance for markets after two years of uncertainty.
European Union officials are ready to activate so-called equivalence the moment Britain leaves the bloc if politicians fail to strike a deal, according to the chief executive officer of Euronext NV, the operator of stock exchanges in France and the Netherlands. That status would allow banks and fund managers based in the remaining EU member states to continue accessing services provided by firms located in London.
“In case of no deal, there’s a list of things that need overnight equivalence as if there was a transition agreement,” Euronext CEO Stephane Boujnah said in an interview Monday. “There’s a large group of people on both sides of the water that are working together to prepare for the worst while hoping for the best. It’s the concept of overnight equivalence.”
Spokesmen for the U.K.’s Financial Conduct Authority, the Bank of England and the Paris-based European Securities and Markets Authority did not immediately respond to requests for comment. A spokesperson for the European Commission, which has the power to grant equivalence, declined to comment on Boujnah’s remarks.
Euronext bought the Irish Stock Exchange earlier this year. The business, which has now been rebranded as Euronext Dublin, relies on a U.K.-based central securities depository called Crest to settle its shares. In a no-deal Brexit, Crest would no longer be able to provide that service and Irish equities would be unable to trade; unlike every other EU member state, Ireland lacks its own securities depository.
Euronext needs temporary access to Crest while it works on a long-term plan to switch securities settlement to Belgium.
“The problem you are describing is on a long list of arrangements that are needed in case of no deal,” Boujnah said. “We have a dialogue with European authorities because if there is no transition, there will be a need for transition arrangements on a case-by-case basis to allow for continuity of critical market infrastructure.”
“Equivalence” -- a status that can be applied to a non-EU country’s regulation -- has become a buzzword since the Brexit vote. The Commission, the EU’s executive arm, said last month that it would use a short-term fix based on existing equivalence rules to ensure that continental European banks could continue to access London’s three clearinghouses if there is a no-deal Brexit. The Brussels-based Commission has the power to say that a country outside the EU has broadly equivalent financial rules to those in the 28-nation bloc.
Equivalence, however, only goes so far. Last week, LCH Ltd., the City of London’s largest clearinghouse, said equivalence was insufficient, and that it also needed recognition from ESMA to continue serving EU-based clients after Brexit. As equivalence can be unilaterally canceled by the EU with as little as 30 days’ notice, banks have also said it’s an unwieldy way to do business.
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