October 17, 2018 / 4:26 PM / a month ago

BoE's Cunliffe expects EU derivatives action in case of no-deal Brexit

LONDON, Oct 17 (Reuters) - The Bank of England’s deputy governor said on Wednesday he expected the European Union to take action to prevent derivatives market disruption in the event of a no-deal Brexit.

Jon Cunliffe told parliament’s Treasury Select Committee that Britain was taking all the unilateral measures it could to minimise disruption in financial markets if Britain crashed out of the bloc without a deal next March.

The BoE has urged the EU to take similar steps, but Brussels has so far said it was up to the private sector to shift financial contracts from Britain to the EU in time.

“My guess is that we will see some action,” Cunliffe said.

“We are still talking to the ECB in the technical group,” he added, referring to discussions between the BoE and the European Central Bank on market stability around Brexit day.

Unless Brussels allows EU customers to continue using clearing houses in Britain in the event of a no-deal Brexit, the legality of contracts would be in question.

British Prime Minister Theresa May said on Wednesday she expected Britain to secure a divorce deal with the EU, containing a “standstill” transition period until the end of 2020 that would avoid market disruption next March.

London-based financial firms are opening new hubs in the EU to avoid potential disruption.

“My assessment is that for large firms, they will be able to operate without discontinuity of service after Brexit,” Cunliffe said.

He reiterated BoE expectations that about 5,000 financial jobs will move from Britain to the EU by the time Britain leaves, with more leaving after that, depending on a future trade deal with Europe.

He cited an Oliver Wyman estimate of 35,000 jobs over time.

“I don’t have a better number than that at the moment,” Cunliffe said.

Some in the EU recognise that the bloc depends on complex financial services in London that they would not be able to replicate, but others say the euro area should not depend on an offshore financial centre, he said.

“A lot of people in the EU do want to have a constructive relationship and access some of the services provided here,” Cunliffe said. “It does not mean that everything stays here.”

Reporting by Huw Jones; editing by John Stonestreet

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