MNI Policy: UK Minister Sees Brexit Derivatives Solution

--Treasury Minutes: Has Been "Deep Dialogue" With EU Over Derivatives Risk

By David Robinson

     LONDON (MNI) - There has been extensive work and "deep dialogue" between

European and UK officials to find a way around the risk of Brexit invalidating

tens of trillions of pounds of derivative contracts, a senior UK official said

on Wednesday.

     The Bank of England Financial Policy Committee on Tuesday cited the risk

from GBP40 trillion of derivative contracts due to mature after Brexit (March

2019) with no agreed regulatory and legal framework to ensure contract

continuity.

     John Glen, the Economic Secretary to the Treasury was guardedly optimistic

a solution would be found, in evidence to a House of Lords EU Financial Affairs

committee.

     Here are key points from his remarks:

     --The heads of the Bank of England and European Central Bank, Mark Carney

and Mario Draghi, have formed a technical committee looking at problems related

to derivatives and other issues. Glen said there have also been extensive talks

going on between UK and EU regulators and finance ministries.

     --The BOE FPC drew attention to the lack of any public response from the EU

on the derivatives issue, but Glen suggested that this was just disciplined

silence from the EU side, rather than any refusal to address the issue.

     "I respect the EU Commission and the way they are conducting the

negotiations and they have clearly established considerable discipline amongst

their regulators," Glen said.

     -The crucial question "is when are they going to take the necessary actions

to mitigate the legal risk around contract continuity," Glen said.

     "I can't tell you when that will be other than I can reassure you that

there has been a deep dialogue going on for six months," he added.

     -The EU Commission has stuck so far to the view that while the UK is

negotiating a Withdrawal Agreement incorporating a transition period it is not

going to set up temporary arrangements with the City of London that could amount

to a sectoral transition deal.

     Glen said that the FPC's stance was "helpful in terms of amplifying the

urgency for a resolution to these matters" but that ultimately it would be a

political decision for the EU.

     -In other remarks, Glen set out how the UK government has moved away from

seeking mutual recognition with the EU over financial services - an arrangement

which would have allowed the EU and UK to align their regulatory practices.

     Instead, the UK is now aiming for a bilateral deal on financial services,

with no guarantees of continued alignment.

     Glen said that this switch was necessary because "the EU would not concede

any, even hypothetical, challenge to their autonomy."

     -He acknowledged that financial sector firms had created the infrastructure

and legal frameworks to allow them to move jobs from London to continental

Europe in the event of no deal.

     He said that the Treasury has been monitoring financial services firms'

plans for Brexit and that things, so far, had been remarkably stable, with firms

sticking to their existing escape plans.

     "We haven't seen wholesale moves of large institutions to other cities in

continental EU," he said.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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