Bank of England: ‘Progress’ made on Brexit but ‘material risks’ to UK financial system remain
The Bank of England said today that “progress” has been made to prepare the UK financial sector for Brexit, but warns that “material risks” remain.
In its latest financial stability report released today, the bank said that “progress has been made in the UK towards mitigating risks of disruption to the availability of financial services to UK end users.”
The bank welcomed the passage of the EU (Withdrawal) Bill and the UK government’s willingness to put in place temporary permissions to allow European Economic Area (EEA) entities to service contracts with customers in the UK.
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However, the bank said the EU had not made any progress on a similar regime that would allow EEA customers reliant on UK-based financial services companies to overcome barriers to cross-border provisions.
The bank said this posed considerable risks, citing £29 trillion in uncleared derivative contracts with parties in other jurisdictions that would become void if the March 2019 Brexit deadline was hit before legislation was passed by both the UK and EU to deal with the issue.
The bank said that it would be difficult for firms to restructure their businesses or transfer existing contracts before the Brexit deadline.
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It said action was needed by both UK and EU authorities to preserve the continuity of existing contracts and warned that “material risks remain”.
Despite the risks the bank said the UK financial system could continue to support the real economy, even in the event of a “disorderly Brexit”.
It said that the economic scenario in its 2017 stress test was more severe than the global financial crisis and more severe than it anticipated even in the most extreme Brexit scenarios.
It welcomed a new technical committee established by the Bank of England and the European Central Bank (ECB) which will focus on the risks that could arise from Brexit.