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Bank of England in fresh plea for EU Brexit action

The Bank of England has warned the EU time is "now pressing" to mitigate the risk of disruption to key financial services in the event of a hard Brexit.

A statement released on Tuesday following Its financial policy committee (FPC) meeting of last week showed that while it remained confident the UK banking system could withstand shocks arising from a cliff-edge scenario, key EU rules continued to be a major risk.

It also maintained concerns about a rise in "risky lending" to businesses.

The committee noted £30bn of leveraged loans – extended to firms already with significant debts and more costly because of higher default risks – taken out by UK companies already this year.

It warned the global leveraged loan market "was larger than – and growing as quickly as – the US subprime mortgage market was in 2006."

The committee said it would assess any implications in its looming stress tests for the major lenders, with the results due in December.

Those tests will be the last before March 2019 when the UK is due to leave the EU.

The Bank, which insists the government's and its own plans are on track, had already been locked in a war of words with financial institutions across the channel over preparedness.

It used its Financial Stability Report in June to demand a fix to clearing rules was arranged by EU authorities to prevent trillions of pounds of derivatives ceasing to function.

It said in its latest statement: "EU or member state rules will restrict EU households and businesses from continuing to use some financial services provided by UK firms.

"In some cases, particularly in insurance, UK financial companies are restructuring so they can continue to serve their EU customers post Brexit.

"However, actions by firms alone can be only partially effective. Timely action by EU authorities is needed to mitigate risks to financial stability, particularly those associated with derivative contracts and the transfer of personal data."

It added: "An implementation period would reduce the risks of disruption to the supply of financial services to UK and EU households and businesses as the UK exits the EU…The need for authorities to complete mitigating actions is now pressing."

The pound weakened against both the dollar and the euro in response to the FPC's update on the state of play.

It was trading down half a cent agsinst the US currency – just above $1.30.

EU officials were yet to give a response.

Miles Celic, chief executive of the lobby body TheCityUK, said: "The industry is taking every action to prepare for a no-deal Brexit.

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"The Bank of England is right that issues like contract continuity in clearing and insurance require additional support from regulators and legislators across the EU.

"This is critical to ensuring wider European financial stability and for providing certainty to customers and clients across Europe."

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