EU watchdog proposes derivatives changes in case of no-deal Brexit

FILE PHOTO: British and EU flags are adjusted prior to the arrival of British Prime Minister Theresa May and European Commission President Jean-Claude Juncker, ahead of the European Union leaders summit in Brussels, Belgium October 17, 2018. REUTERS/Francois Lenoir/File Photo

LONDON (Reuters) – The European Union’s markets watchdog has proposed temporary exemptions from EU rules to ensure that uncleared derivatives contracts are not disrupted if there is a no-deal Brexit.

The changes would mean that banks have a year to shift their derivatives positions from London to the EU if Britain crashed out of the bloc next March, the European Securities and Markets Authority said.

The changes would mean that the act of moving the contracts would not trigger the requirement to clear those contracts.

Counterparties can, however, begin taking steps to move contracts – which requires permission from the end-customer – but leave any actual shift conditional on a no-deal Brexit, ESMA said.

Britain and the EU are aiming to secure a divorce settlement that includes a business-as-usual transition period from next March to the end of 2020.

“The proposed regulatory change supports counterparties’ Brexit preparations and maintains a level playing field between EU counterparties, while addressing potential risks to orderly markets and financial stability,” Steven Maijoor, chair of the European Securities and Markets Authority, said in a statement.

“Counterparties should negotiate as soon as possible the novations of their transactions which are in the scope of this amending regulation, given the 12-month timeframe to benefit from it.”

The changes will require the sign-off of the EU’s executive, the European Commission.

Reporting by Huw Jones; Editing by Kevin Liffey