The FIA has published a white paper entitled ‘The Impact of a No-Deal Brexit on the Cleared Derivatives Industry’.
The purpose of the white paper is to promote a better understanding of the impact of Brexit on cleared derivatives in the event that no agreement is reached between the UK and EU27 prior to 29 March 2019. The paper also considers ways in which policymakers and participants in the cleared derivatives industry could seek to mitigate the impacts of a no-deal scenario during a transition period.
FIA President and CEO Walt Lukken said: “Although FIA members continue to execute their Brexit contingency plans, there are key steps that can immediately be taken by policymakers and regulators, as well as market participants, in order to minimise disruption, avoid fragmentation and maintain access to global markets.”
FIA makes seven key recommendations in the white paper. Among these recommendations, FIA strongly encourages the UK and EU27 to agree to a transitional arrangement comprised of a standstill period and a two-year adaptation period. The standstill period is necessary so as to mitigate the cliff-edge effect of no-deal. However, such standstill period is insufficient on its own. Given the significant volume of adjustments required, an adaptation period of at least two years is needed to provide the industry with sufficient time to adjust business models to future UK and EU27 regulatory regimes.
FIA also recommends that the parties agree to grandfather UK CCPs, trading venues and trade repositories to preserve their EMIR authorisation and qualified central counterparty (QCCP) status before exit day. In addition, FIA recommends that UK regulatory authorities grant equivalence and recognition under English law to EU27 market infrastructure.
FIA also advocates that both the EU27 and UK permit clients in their jurisdiction to be serviced by execution and clearing brokers located in the other’s jurisdiction.
Finally, FIA observes that post-exit day, the UK will not be able to rely on the bilateral recognition arrangements already struck between the European Union and third countries. Accordingly, the UK should replace bilateral arrangements with such third countries in order to avoid loss of market access to and from such countries.