UK, EU watchdogs agree clearing houses pact for no-deal Brexit

LONDON (Reuters) - The Bank of England and the European Union’s market watchdog said they will work to together to avoid financial market disruption involving clearing houses such as LCH in London if there is a no-deal Brexit.

FILE PHOTO - British and EU flags flutter outside the Houses of Parliament in London, Britain January 30, 2019. REUTERS/Toby Melville

The BoE said it and the European Securities and Markets Authority (ESMA) had agreed memoranda of understanding regarding cross-border cooperation and information-sharing between regulators for central counterparties and central securities depositories.

Central counterparties or clearing houses ensure a stock, bond or derivatives transaction is completed even if one side of a trade goes bust.

The final leg of a trade, known as settlement, is conducted by central securities depositories (CSDs), such as Euroclear.

The announcement means that stock, bond and derivatives transactions will face no immediate disruption if Britain leaves the bloc on March 29 without a transition deal.

Stock and bond trading platforms like BrokerTec, MTS, Aquis and Cboe Europe have said they will have new EU hubs ready by March for euro-denominated bond or stock trades currently handled by their London units.

Monday’s pact means the whole chain of a transaction can proceed under a no-deal Brexit.

The pact is one of the elements needed for the EU’s broader decision to “recognize” UK-based clearing houses in order for them to continue serving customers in the bloc from March 30 if there is a no-deal Brexit.

“ESMA aims to complete the next steps for the recognition of the UK CCPs and the UK CSD, and to adopt the recognition decisions well ahead of Brexit date,” ESMA said.

Last week ESMA and Britain’s Financial Conduct Authority agreed pacts that would allow cross border activities in asset management, trade reporting and credit ratings to continue in the event of Britain crashing out of the bloc next month.

Writing by William Schomberg; Editing by Andy Bruce and Catherine Evans