|
|
UK banks hold around £20tn worth of notional derivatives contracts with a cross-border EU element, or around one-fifth of their overall holdings, Mr Woods said, with European banks holding roughly the same amount with UK entities.
If the UK crashed out of the EU without a deal this would not necessarily void these contracts, or insurance policies, he explained. The problem comes when a client tries to exercise an option on a derivative contract; this can only be done by a regulated entity. If there is no agreement on how financial institutions will be regulated or authorised, this will be an issue.
“By far the best fix would be for something to be included in the withdrawal bill. There would have to be bilateral agreement to fix this on both sides,” Mr Woods said, adding that there was precedent in the form of how contracts were dealt with when the euro single currency was introduced.
Mr Woods also said that cooperation between UK regulators and their counterparts across the rest of the EU could be stipulated through a financial-services chapter in a free-trade agreement.
The BoE has warned before about the legal uncertainty surrounding these types of contracts but this is the first time it has called for a specific clause in the Brexit withdrawal bill.
Less desirable would be for the UK and the rest of the EU to deal with the issue separately, Mr Woods said. Even worse would be for firms themselves to try to solve the problem.
Mr Woods said a report published last year by Oliver Wyman, the consultancy, forecasting that 75,000 jobs in the UK could be lost overall because of Brexit was “plausible” but in the short-term it would be closer to 10,000. [...]
Full article on Financial Times (subscription required)