After months listening to the U.K. warn about the risks posed bya no-deal Brexit, European Union (EU) financial regulators are nowstepping up plans to avert a market meltdown.

Daniele Nouy, the European Central Bank's (ECB's) head ofsupervision, set an assuring tone on Thursday when she said the ECBis “ready to help ensure a smooth Brexit—no matter the outcome ofthe political negotiations.” And she's not alone. The EU's topmarkets cop called on Brussels to guarantee that the bloc's banksdon't lose vital access to London's clearinghouses in a disorderlydivorce.

That's a change, because up to now the EU has largely said thatpreparing for a cliff-edge Brexit, with no transition to givegovernments and financial firms time to adjust, is the industry'sresponsibility. Nouy and Steven Maijoor, chairman of the EuropeanSecurities and Markets Authority (ESMA), signaled that EUinstitutions would take action if needed.

The Brexit talks are entering a crucial phase, with about twoweeks of intense negotiations planned to try to wrap up awithdrawal agreement before an Oct. 17 summit of political leaders.With the clock ticking down to Britain's planned withdrawal nextMarch, and both sides talking openly about the possibility ofnegotiations collapsing, calls from the U.K. and industry toaddress the risks are growing louder.

ECB Governing Council member Ewald Nowotny said the potentialrisks are still underestimated. “There are many signs that the riskof a hard Brexit will become relevant,” he said.

For most of the last year, Bank of England (BOE) Governor MarkCarney and Financial Conduct Authority Chief Executive AndrewBailey have urged their EU counterparts to join them in promisingregulatory or legislative responses to calm markets and ensureinsurance and derivatives contracts can continue uninterrupted.

The Bank of England has said that a disorderly Brexit could putas much as 96 trillion pounds (US$125 trillion) of derivativescontracts at risk, along with billions of pounds of insuranceliabilities.

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'Transitional Provision'

The European Commission, the EU's executive arm, has so fardownplayed the BOE's alerts, insisting that the onus is on firms toBrexit-proof existing contracts. The commission has said it “standsready to adapt to the developments in the negotiations” and willreview the situation after the October summit. A commissionspokeswoman declined to comment further on Thursday.

Maijoor said this week that EU lawmakers need to adopt a“transitional provision” swiftly that ensures the bloc's banksdon't lose access to a critical cog in world markets—London'sderivatives clearinghouses. In a no-deal Brexit, U.K.clearinghouses could lose authorization to do trades for EUclients.

The urgency to act was thrown into sharp relief in recent dayswhen European banks were told they need to give notice by the endof December if they intend to close positions at London StockExchange Group Plc's clearinghouse, the world's biggest foreuro-denominated interest-rate swaps.

Maijoor also said ESMA would start talks with the FCA to havepartnership agreements in place in time for Brexit, so they cancontinue to exchange information and work together on supervisingfinancial firms. Robert Ophele, head of France's markets regulator,likewise said EU regulators are committed to establishingcooperation agreements with U.K. authorities.

The FCA's Bailey said on Thursday that he was “ encouraged” byMaijoor's remarks. “We've all been very clear that we mustn't letBrexit cause a sort of breakdown in relations,” Bailey said.

From: Bloomberg

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