EU grants temporary permissions under hard Brexit

EU grants temporary permissions under hard Brexit

The European Union (EU) has agreed to grant temporary permissions to UK financial services firms in the event of a no deal Brexit.

The European Securities and Markets Authority (Esma) has stated it will treat UK domiciled financial services firms that act as counterparties or provide central depository services to financial markets in the same way as firms in the EU from a regulatory standpoint, for at least the first year after Brexit.

This involves EU and UK financial regulators recognising each others' standards as equivalent. It matters to UK financial institutions as it means they can continue to provide services to firms within the EU.

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Counterparties and central security depositories help financial markets function. Counterparties sit between buyers and sellers and act as a guarantor. Central securities depositories act to record transactions.

Nicky Morgan MP, chair of the Treasury select committee, welcomed the agreement.

She said: "Esma’s announcement is welcome news. As the Bank of England has said, recognition would allow UK CCPs to continue to provide clearing services to their EU members, and EU banks to meet their obligations to UK CCPs.

"By agreeing to grant temporary equivalence for UK CCPs and UK CSDs, one more risk of a no-deal Brexit has been taken off the table.                                      

"As the committee concluded in its report on transitional arrangements last year, it is overwhelmingly in the economic interests of both the UK and the EU to reach an agreement on transition. A sudden reversion to a trade relationship based on WTO commitments would be damaging for both sides."

The equivalence recognition will only be needed in a no deal scenario. Were a deal to be agreed, the transition period would provide CCPs and CSD’s with access to EU markets.