EU ‘ risking bank chaos ’

THE Bank of England cranked up the pressure on Brussels yesterday as it warned that a failure by Europe’s financial regulators to prepare for Brexit posed “material risks” to the cross-border banking system.

Tens of trillions of pounds of derivative contracts, used by lenders to hedge their interest rate and currency trades, could cease to function unless the European Union implements protective legislation.

This could affect the cost and availability of finance.

In its financial stability report, the Bank of England said UK banks are strong enough to withstand even a “disorderly” Brexit but suggested progress in Britain had not been matched by European authorities.

It said: “The UK Government has committed to legislate, if necessary, to put in place temporary permissions and recognition regimes and to allow European Economic Area entities to service contracts in the UK.

“This will allow EEA banks and insurers to continue their activities... thus mitigating a number of risks of disruption to UK customers. As yet the EU has not indicated a solution. In some areas, such as derivatives contracts, actions would be needed by both UK and EU authorities to preserve the continuity of existing cross-border contracts. We judge that material risks remain.”

European regulators say UK banks aren’t prepared for a hard Brexit.

Miles Celic, chief of TheCityUK, which represents UK financial and professional services, said: “The biggest threat to financial stability right now is continuity of contracts postBrexit. The biggest barrier to addressing this issue is the EU regulators’ failure to accept and get to grips with the risk. This must not be drawn into the politics of Brexit – it needs a technical solution. The industry is doing everything it can.

“EU regulators need to explain what is preventing them from taking the reasonable steps necessary to defuse this risk. The time has come for European regulators to focus less on the negotiating ambitions of Brussels and more on customers.”