LONDON (Reuters) - The Bank of England urged the European Union on Tuesday to do more to protect cross-border financial services from the risks of a “cliff-edge Brexit”, saying the need for action was now pressing.
Less than six months before Britain is due to leave the EU, creating the potential for new barriers for companies doing business across the English Channel, the BoE said in its strongest warning so far that it saw risks for insurance, derivatives and the transfer of data.
London and Brussels have yet to agree the terms of Britain’s departure from the bloc and their new relationship, a deal that would mean business as usual until the end of 2020.
“There has been considerable progress in the UK to address these risks, but only limited progress in the EU,” the central bank’s Financial Policy Committee (FPC) said in a statement published on Tuesday after a meeting on Oct. 3.
“In the limited time remaining, it is not possible for companies on their own to mitigate fully the risks of disruption to cross-border financial services. The need for authorities to complete mitigating actions is now pressing.”
Bankers say Brussels wants to pile pressure on banks, insurers and fund managers in London to open up new hubs in rival EU financial centres such as Frankfurt, Paris and Dublin.
The European Commission said on Tuesday it has consistently encouraged all stakeholders in financial services to prepare for Brexit, and that it continued to analyse with the European Central Bank possible risks for markets.
The EU executive will review the situation after an EU summit next week that seeks to finalise Britain’s exit deal and transition period, a Commission spokesman said.
The industry is also waiting to see what steps if any a joint BoE and ECB working group will take to keep markets orderly around Brexit Day.
Derivatives with a nominal value of 41 trillion pounds would face legal uncertainty if the EU took no action in the event of a no-deal Brexit, the BoE said.
On insurance, even if companies based in Britain complete planned moves of their European business to the EU before March, around 9 million policyholders in the bloc would still be under the shadow of uncertainty after March, it said.
Britain is approving a law that would temporarily allow EU financial firms to continue doing business here in the event of a no-deal Brexit and wants the EU to do likewise, but Brussels has so far refused.
“Financial stability should not be jeopardised in a game of high-stakes political poker,” said Catherine McGuinness, political leader of the City of London financial district.
LCH in London, which clears most euro-denominated interest rate swaps, faces having to force EU-based members to shift their contracts to rivals in the bloc, a costly undertaking.
LCH had no immediate comment.
The FPC also said it was keeping its capital buffer rate for banks unchanged, noting restraint among borrowers, although it said it was concerned by fast growth in lending to riskier, highly indebted companies.
Banks generally hold enough core capital to cope with a disorderly Brexit, it said.
Britain’s banks are required to meet a so-called countercyclical capital buffer (CCyB) of 1 percent of their risk-weighted assets as part of BoE efforts to avoid a repeat of the taxpayer bailouts after the global financial crisis.
The FPC said it would review the CCyB level at its next meeting on Nov. 28.
Reporting by Huw Jones and William Schomberg; Editing by Gareth Jones