by BLOOMBERG

LONDON • The UK’s withdrawal from the European Union (EU) poses a “substantial risk of disruption” to crossborder clearing of financial contracts, according to the Bank of England (BoE).

The European Commission, the EU’s executive arm, has proposed supervision rules that could force foreign clearinghouses to locate the clearing of derivatives denominated in EU currencies inside the bloc.

In response, some clearinghouses are looking at contingency plans, including moving some activities from the UK after Brexit, the BoE said yesterday. This option isn’t available in all markets, “for example where the complexity and cost of any migration was significant,” the central bank said in its report of the Financial Policy Committee’s Sept 20 meeting.

“So there remained a substantial risk of disruption of cross-border clearing activity,” the BoE said. “The bank was continuing to engage financial market infrastructure and firms on their contingency planning.”

Global banks are preparing for the worst — that the City of London will be stripped of the ability to clear euro-denominated swaps after Brexit — and have already started the process of moving employees and operations central to the clearing function to the continent.

Deutsche Bank AG CEO John Cryan told employees recently he was girding for a hard Brexit, where the “vast majority” of trades currently booked in London probably move to Frankfurt.

The BoE said a number of European firms operating in the UK were “not sufficiently focused” on addressing the Brexit risk of disruption to wholesale-banking services. — Bloomberg