EU faces Brexit chaos in threat to £20trn deals

BANKS are gearing up for complex negotiations across the European Union over the uncertain future of about £20trillion of crucial finance contracts.

Valuable derivatives traded between EU and UK banks will have no legal basis after Britain leaves the bloc – unless a deal can be reached.

The financial trades are widely used by thousands of businesses and banks to guard against sudden economic changes, so disruption would create chaos on the continent as well as in the UK.

Bank of England governor Mark Carney warned last week that tens of thousands of existing contracts were threatened and that all EU countries needed to find a solution to allow cross-border derivative trading to continue as normal. He said: ‘That can’t be solved by the action of the institutions, it can’t be solved by actions by the Bank, or even the UK Government. It has to be solved ultimately by actions by the EU 27 and the UK.’

The Bank is in talks with International Swaps And Derivatives Association, which represents dealers, to help try to fix the problem.

Last night Brexiteers argued it was yet more evidence of how much the Continent stood to lose if no trade deal between the EU and the UK was agreed.

Eurosceptic Tory MP John Redwood said: ‘It’s massively in their interests to have smooth arrangements for the day after we’ve left.

‘I just hope they respond positively to the Prime Minister’s very generous approach, otherwise we will just be leaving without a deal in place.’

The issue can be resolved by London-based lenders setting up a European operation and shifting their contracts into it, but this is fiendishly complicated, expensive and could take far longer than the 18 months left until Brexit.

The Bank’s Financial Policy Committee said: ‘A comprehensive solution is likely to require the development and passage of legislation in both jurisdictions in order to protect the long-term validity of existing contracts.’

The Bank also highlighted the potential risk from Brexit to contracts between UK insurers and EU firms. It said that without a deal, firms insured by companies based in London might suddenly be unable to pay their premiums or make a claim.

Fears were also raised about data protection rules, as Brussels allows non-EU nations to store information about its citizens only if it judges their rules to be ‘adequate’. The Bank of England said that banks tended to keep records of European clients in London, creating problems if bureaucrats do not give Britain the green light.