Top officials from the Bank of England today called for the government to agree a fix with the EU for financial contracts which may be at risk of legal invalidation after Brexit.
An explicit agreement at the level of a treaty on the legality of contracts between the UK and the EU would give firms certainty, according to Sam Woods, a Bank of England deputy governor and the head of the Prudential Regulation Authority.
Speaking to the House of Lords committee on EU financial affairs, Woods said: “By far the best fix for these is if something can be included in the withdrawal agreement or a separations issue agreement of some kind.”
Bank policymakers have previously warned that derivatives contracts worth a notional value of £20 trillion are at risk of becoming void when the UK leaves the EU.
Without the protection offered by derivatives firms could be left exposed to market movements in currencies and interest rates, with serious risks to financial stability about which banks and companies themselves can do little.
Woods and his fellow deputy governor, Sir Jon Cunliffe, repeated a call for negotiators to give firms certainty as soon as possible. The “sooner, the better,” said Woods, who has previously called for a transition deal by Christmas.
Cunliffe added that firms need “the ability to make a transition to wherever they need to go, in good time and in an orderly way”.
As negotiations move closer to March 2019 without a deal firms will be more incentivised to move jobs abroad, Woods added.
As many as 10,000 jobs will likely leave the UK by “day one” after Brexit, Woods said.
The extent of longer-term jobs moves will be determined by the final deal, Woods said. However, a widely cited report by consultants Oliver Wyman which estimated an upper bound of 75,000 financial services job losses is “plausible”, he added.
Meanwhile, Cunliffe warned that EU efforts to regulate clearing activity in the UK would have to be limited. Some European politicians have suggested clearing of euro-denominated derivatives might need to be supervised in the EU after Brexit to protect financial stability.
European Union proposals to supervise foreign clearing houses must not end with “multiple hands on the steering wheel”, he said, according to Reuters.