(Reuters) Financial markets face Brexit day upheaval if clearing houses in Britain are abruptly cut off from continental customers, a senior JPMorgan bank official said on Wednesday.
Sally Dewar, international head of regulatory affairs at the US bank, said that without European Union recognition of UK clearers before Britain’s departure from the bloc in March 2019, there could be significant market disruption.
Under current EU rules, a British clearing house could not obtain this recognition until after Brexit.
“The lack of recognition could lead to market disruption on Day One, and that’s why we can’t predict the extent of it,” Dewar told a House of Lords committee.
New transitional arrangements needed
Clearing houses like LCH and ICE Clear ensure that trillions of pounds of financial transactions are completed safely, and Dewar said they will need transitional arrangements.
JPMorgan and its peers who serve customers across Europe from a base in London are now activating plans to avoid disruption in customer links, such as by setting up new hubs or expanding existing ones in the EU.
“Clearly there is a ticking clock. We are already in execution mode in terms of the infrastructure, licences, approvals that we need,” Dewar said. Some key decisions on moving staff have also been taken.
“But by the end of Q1 (2018) we have to start taking decisions around informing clients, which becomes more difficult to unravel,” Dewar said.
She acknowledged that if EU trades cannot be booked in London, it would mean a loss of tax revenue for Britain.
UK regulation post-Brexit
Julian Adams, group regulatory and government relations director at UK insurer Prudential, said the financial industry also needed to know how “inoperables”, or issues only governments can resolve, will be dealt with. These include ensuring that cross-border insurance contracts still work.