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Bank fires warning shot at EU over Brexit

Bank fires warning shot at EU over Brexit

The Bank of England has expressed concerns about the "limited progress" made by the European Union on planning for a no-deal Brexit.

The Bank's financial policy committee (FPC) has said the need for action to make sure financial services are not disrupted by Britain's departure from the European Union was "pressing".

The Bank stated: "The FPC has been monitoring risks of disruption that could arise in the absence of an implementation period or any other agreement. There has been considerable progress in the UK to address these risks, but only limited progress in the EU.

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"In the limited time remaining, it is not possible for companies on their own to mitigate fully the risks of disruption to cross-border financial services.  The need for authorities to complete mitigating actions is now pressing."

The FPC said there were particular issues around derivative contracts and the transfer of personal data.

It warned that EU or member state rules will restrict EU households and businesses from continuing to use some financial services provided by UK firms.

The FPC added: "In some cases, particularly in insurance, UK financial companies are restructuring so they can continue to serve their EU customers post Brexit. However, actions by firms alone can be only partially effective."

Despite this, the FPC judged the UK banking system would be strong enough to serve households and businesses through a disorderly, cliff-edge Brexit.

The FPC did express a concern about the rapid growth of leveraged lending, including to UK businesses, and would assess this in its 2018 stress test.

It warned that the global leveraged loan market is larger than – and growing as quickly as – the US sub-prime mortgage market was in 2006.

The 2018 stress test will also cover a synchronised global downturn in output growth because of the "material" risks to the UK from global vulnerabilities.

These include deepening trade tensions between the US and China and high debt levels in emerging market economies which face "tightening" global financial conditions on the back of US interest rates going up.

Susan Hill, a chartered financial planner with Susan Hill Financial Planning, said: "We have just had Mifid II and GDPR so we have already got the EU disrupting part of the financial services sector just from a legislative point of view.

"From an economic point of view I am positive about the future, although not necessarily immediately. Things have to run their course."

damian.fantato@ft.com