01 October 2018

Financial Times: Key London markets would be in the lurch under a ‘no-deal’ Brexit

Some of London’s biggest markets operators, such as TP ICAP, Thomson Reuters, Cboe Europe and Turquoise are setting up hubs in Europe, centred on Amsterdam, Paris and Dublin.

Hopes that the UK’s vote to leave may have helped to unhitch the UK from some of the EU’s financial markets rules have been set aside, at least temporarily.

Instead there has been a growing, if reluctant, acceptance that political divisions mean the UK will probably be leaving the EU in six months’ time, but with little clarity over the long-term arrangements for life outside the bloc.

With the only certainty being the looming March 2019 deadline, regulators either side of the Channel have become more vocal about the impact of the UK leaving without a political exit agreement.

“This would mean the sudden loss of all market access rights based on passporting, without the benefit of additional time to implement the necessary structural changes,” says Peter Bevan, global head of financial regulation at Linklaters, the London law firm.

“In this event, it may be that regulators could help plug the gaps left by the political process by allowing firms some further time to adjust, but this would depend on trust between UK and EU authorities and retaining that trust may be increasingly difficult if this turns into an acrimonious divorce.”

UK regulators have said they would issue temporary licences for EU trading venues to access the UK market. However, that may not be enough. As the Institute for Government, a UK think-tank, pointed out last month: “There are many areas that require EU action, and no guarantee it will reciprocate.”

“I don’t think the City has ever believed in a no-deal scenario. But the mood swing in the last quarter is down to the amount of preparation that’s necessary for it,” says Alasdair Haynes, chief executive of Aquis Exchange, a UK trading venue. In September it announced plans to set up a Paris office to ensure access to EU markets. “You have to be prepared for this as it could be one of those days in which you see huge spikes in the market.” [...]

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