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The city’s financial regulator has relaxed the rules on transactions with a daily value of billions of pounds, just hours before the UK officially left the EU single market.
The Financial Conduct Authority (FCA) used temporary emergency powers on Thursday to allow companies on both sides of the Canal to negotiate derivative contracts that are considered crucial for financial stability.
The last minute adjustment came hours before the UK’s exit from the EU single market at 11pm GMT on New Year’s Eve. The measure will allow banks and financial companies to negotiate derivatives known as swaps, which are contracts that allow companies to protect themselves against risks such as movements in interest rates or currency exchange rates.
London is by far the largest place for derivatives trading in Europe. Before Brexit, UK financial firms had direct access to businesses across the EU, but much of that access has been revoked, and some European politicians hope to attract business from London to cities like Paris, Amsterdam and Frankfurt.
Britain has urged Brussels to grant full access to the two-way market, known as “equivalency,” for swap trading, but the bloc says it wants information from Britain on its intentions to diverge from EU rules sooner. to be able to make a decision.
The trade deal agreed between the Boris Johnson government and Brussels on Christmas Eve does not cover financial services, meaning that UK companies trying to serve EU customers will depend on the EU choosing to recognize UK regulation. as equivalent.
The FCA said on Thursday that UK-based companies it regulates could use EU platforms, provided they don’t have the option to use another location like the US. That could result in more trade in the EU instead. From london.
The EU’s refusal to grant the equivalency has come despite the hopes of the UK government and the FCA that a deal can be reached before January 1.
The FCA said it “continues to view the mutual equivalency agreement between the UK and the EU as the best way to avoid disruption for market participants”, as well as avoiding companies having to negotiate in multiple locations, which could increase the costs.
The FCA said it would review its approach at the end of March.
The Bank of England previously warned that interest rate swaps worth around $ 200bn (£ 146bn) could be halted due to the clash between the UK and EU exchange rules.
