LONDON (Reuters) - It may not be possible for the European Union to legislate in time to avoid disruption in cross-border derivatives contracts in case of no-deal Brexit, a top EU regulator has said.
Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), said it and the bloc’s national regulators were monitoring how the derivatives market was readying for a potential “cliff-edge” March departure by Britain from the EU.
The Bank of England has said Britain and the EU need to legislate to ensure continuity in the stockpile cross-border derivatives contracts worth 26 trillion pounds ($35 trillion) that stretch out beyond Brexit.
Markets alone cannot fully tackle the issue, the BoE said.
Although Britain and the EU have agreed a transition deal to continue applying EU rules in Britain until the end of 2020, it will not be ratified until October. Many in the final sector are concerned it could be derailed by lack of clarity on future UK-Irish border relations.
Maijoor said another major legal uncertainty - over the European Union (Withdrawal) Bill to formally end Britain’s EU membership and transpose EU into British law - was also making it hard for EU authorities to intervene to ensure “contract continuity” in derivatives.
“It would be difficult to envisage a public sector intervention without at least EU laws being implemented nationally in the UK,” Maijoor told Reuters.
The bill has become a major test of Prime Minister Theresa May’s authority, and there is no exact timetable for its final approval.
“Getting EU laws in the UK in place is still uncertain. The best advice to the private sector is to prepare for the unfortunate chance there may not be a transition regime in place,” Maijoor said.
The BoE and the European Central Bank are teaming up to keep markets orderly around Brexit Day, though they have no powers to legislate.
Britain’s financial sector, the largest in Europe, is looking to what sort of new trading terms it can expect with Europe after 2020, when transition ends.
The EU’s chief Brexit negotiator, Michel Barnier, has said the best bet is a form of the bloc’s existing “equivalence” system.
This refers to Brussels granting markets access to foreign banks, insurers, asset managers or clearing houses if their home rules are in line with the bloc’s. Barnier has said that, for UK financial firms, it could start during the transition period to save time.
ESMA advises Brussels on granting equivalence and Maijoor said Britain’s withdrawal bill also needed to be in place for equivalence determinations.
Reporting by Huw Jones; editing by John Stonestreet