The government must secure a transition deal by the end of the year or risk financial instability, and London's future as a global hub, the boss of the world's largest clearing house has warned.
Daniel Maguire, chief executive of London Stock Exchange's LCH, told a House of Lords committee that he would like to see a three year "standstill" agreement reached "so we can make everything safe and sound". Although a legal agreement would be preferable, Maguire said an agreement in principle would suffice given time constraints.
Without "absolute certainty" in place, government risked triggering contingency plans which "meant trains start to leave the station, and it's very hard to pull that back."
These contingency plans could result in a "much more systemic issue" that could impact liquidity.
"The fundamental point for us is that if we go down the route of invoking contingency plans and we end up with some form of location policy, this will result in a much more systemic issue in breaking up the pools of liquidity, the transparency and the oversight of risk management that has been bought through the centralisation of these markets," he said.
"The impact of the contingency will create that fragmentation."
Maguire stressed that after the financial crisis, fragmentation had been avoided in order to reduce risk, stressing that it was what markets desired. Creating "many pots of risk" would not only increase systemic risk but also be more costly. LCH's analysis had indicated it would cost the EU alone $25bn.
LCH, which processes 90 per cent of the global euro-clearing market, is on course to have cleared $1000 trillion this year.
And he also urged the government to ensure that the UK remained "at the table" for regulation.
"Regardless of where we end within this process, it is absolutely essential that the UK stays at that table," he said. "Not withstanding the degree of fragmentation, it is imperative we sit at table and shape derivatives regulation."