Bank lobby warns of market ructions if Brexit talks stumble

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LONDON (Reuters) - Europe’s banking lobby warned on Wednesday of the dangers to wholesale banking and financial stability if negotiations over Britain’s exit from the European Union end in deadlock.

“Financial stability and market efficiency must be safeguarded during the Brexit implementation process and thereafter,” the Association for Financial Markets in Europe (AFME) Chief Executive Simon Lewis said in a statement.

In a report released on Wednesday, AFME highlighted conflicting issues faced by the key actors in Brexit talks which it said could cause disruptions, including Britain wanting to secure the best possible access to the bloc, while not wishing to remain part of the single market.

AFME is also concerned about the European Commission having responsibility for EU financial markets policy, while also being the EU’s chief Brexit negotiator, as well as Europe’s capitals competing to attract financial firms from London, while also wanting to limit any additional systemic risk.

“With such a disparate set of actors and incentives, it will be a major challenge to implement Brexit in an orderly way in relation to wholesale banking,” AFME said.

There are also potential problems ahead for banks in London that want to continue operating from the British capital after Brexit under an EU system known as “equivalence”, whereby the EU grants market access to non-EU firms that comply with rules that are as robust as those in the bloc.

AFME said the European Securities and Markets Authority (ESMA), would play a crucial role in advising the EU on whether a non-EU firm could be deemed to be equivalent.

ESMA’s resources, however, will become more stretched once the UK’s budget contribution ends, meaning that obtaining equivalence for about 2,000 firms may not be fast enough to avoid market disruption, AFME added.

Reporting by Huw Jones; editing by Alexander Smith