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JPMorgan says fears Brexit day upheaval if UK clearing houses cut off

Reuters  |  LONDON 

By Huw Jones

(Reuters) - Financial markets face Brexit day upheaval if clearing houses in are abruptly cut off from continental customers, a senior JPMorgan official said on Wednesday.

Sally Dewar, international head of regulatory affairs at the U.S. bank, said that without European Union recognition of clearers before Britain's departure from the bloc in March 2019, there could be significant market disruption.

Under current rules, a British clearing house could not obtain this recognition until after Brexit.

"The lack of recognition could lead to market disruption on Day One, and that's why we can't predict the extent of it," Dewar told a House of Lords committee.

Clearing houses like LCH and ICE Clear ensure that trillions of pounds of financial transactions are completed safely, and Dewar said they will need transitional arrangements.

JPMorgan and its peers who serve customers across Europe from a base in are now activating plans to avoid disruption in customer links, such as by setting up new hubs or expanding existing ones in the

"Clearly there is a ticking clock. We are already in execution mode in terms of the infrastructure, licences, approvals that we need," Dewar said. Some key decisions on moving staff have also been taken.

"But by the end of Q1 (2018) we have to start taking decisions around informing clients, which becomes more difficult to unravel," Dewar said.

She acknowledged that if trades cannot be booked in London, it would mean a loss of tax revenue for

The European Central Bank, which licences banking hubs in the euro zone, said in a newsletter on Wednesday that it was "not comfortable" with booking models being proposed by lenders who want to continue using after Brexit.

Julian Adams, group regulatory and government relations director at insurer Prudential, said the financial industry also needed to know how "inoperables", or issues only governments can resolve, will be dealt with. These include ensuring that cross-border insurance contracts still work.

COMPETITIVENESS

The House of Lords committee is looking at how regulation should be shaped after Brexit.

Dewar and Adams - both former regulators - signalled differences over this, reflecting how JPMorgan will have significant business in the EU27 after Brexit, while Prudential is more focused on and Asia.

Dewar said should not diverge too much from rules otherwise it would undermine its ability to reach agreement with the on financial services trade.

Adams, however, said there was no point in Brexit unless it gave British regulators leeway to tailor rules, while avoiding a "race to the bottom".

The objectives of regulators after Brexit may need broadening beyond "safety and soundness" to include the competitiveness of as a global financial centre, Adams said.

"There is a debate to be had about whether competitiveness or the promotion of as a financial centre could and should be part of a Brexit regulatory landscape," Adams said.

regulators have said there must be no return to the "light touch" era seen before the global financial crisis forced to bail out undercapitalised

(Reporting by Huw Jones; Editing by Hugh Lawson)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, November 15 2017. 20:35 IST
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