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The UK’s financial services industry has mitigated most Brexit risks for continuing cross-border business, even if the UK and EU fail to reach agreement over the future of financial services once the transition period expires at the end of 2020, said the Bank of England’s Financial Policy Committee (FPC). However, it warned that “some disruption” remains a possibility for EU-based clients, although this would not pose any risk to financial stability.
“Some EU-based clients and customers may not have access to all existing services after the end of the transition period,” the committee said. It added that UK banks had begun to notify clients that certain retail banking services would not be available after transition.
As it stands, that would replace transition arrangements in place for 2020. “Banks and other financial institutions have made further preparations for the end of the transition period. And it is important that they continue to do so to minimise the risk of disruption,” the bank said.
Insurers with significant cross-border business have set up new subsidiaries in Europe to bypass the risk of a no-deal Brexit and the FPC said restructuring will allow of the £60bn of EU liabilities to continue to be serviced.
The FPC said two thirds of UK banking clients have completed documents that will allow them to enter into derivative trades with EU entities. But the FPC warned that the number of clients actively trading in the new entities is “materially lower” and “some operational risks therefore remain, including if many clients seek to migrate to the EU entities in a short period of time”.