The Bank of England is set to engage in a joint working group with the European Central Bank, to examine the potential financial disasters which could occur following Brexit.
Financial institutions in the City of London are lobbying for answers, given that billions of pounds worth of cross-border financial contracts could be declared invalid depending on the result of key negotiations. Alongside changes to the financial landscape, the Government will need to provide key answers to many other areas.
Issues affecting local governments such as Council Tax Arrears, the problem with the Irish border and the status of non-nationals have dominated headlines in the UK. Behind the scenes, however, the uncertainty with international financial institutions and their roles in post-Brexit UK has led to ECB joining Threadneedle Street officials to attempt to understand the full extent of the potential risks.
The European Commission confirmed that the Bank of England and ECB – the institution which regulates the 19-state EU – will enter a partnership to assess the outcome the day following Britain’s EU departure. The focus of this joint effort is to assess the changes to the financial services industry on Friday 29 March 2019 (the date of Brexit).
Mario Draghi (ECB President) and Bank of England governor Mark Carney will provide findings to Britain’s Treasury.
“Other relevant authorities will be invited on an issue-specific basis,” the commission said (via The Guardian). “The primary responsibility to prepare for Brexit remains with market participants.”
Panic and Uncertainty
British negotiators are working for the European Union to allow financial agreements under EU law be sustained until 2020. With the failure of both sides to reach parity – or to show any tangible sign of reaching agreement on trade deals – there is panic and uncertainty over just how hard financial institutions will be hit, post-Brexit.
Cross-border insurance contracts and derivatives deals will dominate the first meeting between the groups, which is scheduled to be conducted within the next few weeks. There is a figure of £250bn set aside to ensure financial institutions did not collapse under the pressure of this uncertainty. The Bank of England has already forged agreements with global central banks to provide foreign currency to the UK, if required.
The Challenges of Brexit
The Chief Executive of financial services lobby group TheCityUK, Miles Celic, said that the new working group will aim to ‘make quick progress’ in addressing the most complex of these issues:
“Not all challenges thrown up by Brexit can be solved by the industry, the UK or the EU in isolation,” he said. “There are many practical issues which require close regulatory dialogue and cooperation. The new working group is a positive and pragmatic development. We look forward to engaging with it and are confident that real progress can be made quickly.”
If this partnership can ease the stresses of financial institutions which have grown weary of the protracted (and ultimately unsuccessful) negotiations will remain to be seen. The task of bringing some semblance of certainty in a period which is anything but is one which is far from enviable.