Businesses should entertain chance of ‘accidental’ no-deal Brexit, warns City of London Corporation

Businesses need to entertain the possibility of a no-deal Brexit as it could "happen by accident", the City of London Corporation warned today.

Policy head Catherine McGuinness yesterday told German businesses, which had gathered for a Brexit event organised by the London Chamber of Commerce, that although she was hopeful the UK would not leave the EU without a deal, the city still needed to be mindful of such an exit from the EU.

Alluding to the current chaos in parliament, McGuinness said that the withdrawal agreement – which the Corporation has supported – ultimately lay in parliament’s hands.

“I’m repeatedly told that no deal won’t happen because parliament doesn’t want it, but what worries me is that there are 27 other countries on the other side of the Channel and there is the possibility of something happening by accident – of no deal happening by accident,” she said.

McGuinness repeated that the operation of clearing houses remained a key issue for the financial services sector.

“The urgent problem is about the need to give people three months notice if they can’t serve, and if we work back from the 29 March that notice expires in a couple of weeks,” she said.

“This particular issue has the potential to be destabilising for financial markets, which regulators have been concerned about for some time.”

While McGuiness welcomed the EU offering some assurances on the issue, she said: “Warm words butter no parsnips.”

Her warnings come as UK clearing houses and industry groups grow increasingly impatient with the EU over the future of trillions of pounds worth of derivative contracts after Brexit.

Yesterday trade groups including the International Swaps and Derivatives Association, the Futures Industry Association, the Association for Financial Markets in Europe and the International Capital Markets Association co-signed a letter to Valdis Dombrovskis, the EU commissioner in charge of financial stability, in which they “urgently” requested legal certainty that EU-based firms will still be able to use London clearing houses if there was no deal.

The Bank of England has also increased pressure on the EU in recent weeks. Last week deputy governor Sir Jon Cunliffe told the Treasury Select Committee that clearing houses needed more definition of the “conditionality, scope and timescale” of the temporary permissions granted by the EU.