11.15.2018
By Shanny Basar

City Welcomed Proposed Brexit Deal Before Ministers Resigned

Financial services had welcomed the publication of the UK government’s Withdrawal Agreement from the European Union yesterday evening as a commitment to work towards mutual grant of equivalence by June 2020. However Dominic Raab, Brexit Secretary, and other Cabinet ministers have since resigned as they said they cannot support the deal and sterling and bank stocks have fallen.

Reuters reported:

Yesterday Simon Lewis, chief executive of trade association AFME, said in a statement: “Progress also appears to have been made on the declaration for the future relationship for financial services.

“We welcome the commitments to a continuing close and structured regulatory and supervisory cooperation and commencing equivalence assessments as soon as possible,” Lewis continued. “Pending ratification by the European Council and the UK and European parliaments, it is still important for the Commission and Member States to clarify steps to mitigate cliff edge risks in a no deal scenario.”

Miles Celic, chief executive of lobbying group TheCityUK, said: “Negotiators have made great strides on the withdrawal agreement, as well as the future relationship.It’s encouraging that the declaration is grounded in the principles of regulatory autonomy, transparency and stability, and underpinned by close and structured cooperation. The industry will also welcome the clarity on the legally-binding transition period.”

The London Stock Exchange had said:

The exchange owns clearing house LCH, which clears the majority of interest swaps globally. The European Commission has proposed that systematically important clearing houses that clear euro derivatives will have to be located in the European Union after Brexit.

Jonathan Herbst, global head of financial services at law firm Norton Rose Fulbright, said in an email: “The position is that the political declaration contains a commitment to work towards mutual grant of equivalence by June 2020. This is to be welcomed. It is not clear if this is equivalence based on the existing single market provisions or could include areas such as banking. The fact that the point is not spelled out is potentially helpful as the issue is left open. However, it is important not to read too much into this point. Overall the financial services statements are helpful as far as they go. Steady as she goes is the motto and we are at the beginning of a long negotiation process.”

David Zahn, head of European Fixed Income at Franklin Templeton Investments, said in a blog that even if the Cabinet had backed the withdrawal deal, May would have faced many obstacles which would lead to uncertainty and volatility in UK and European financial markets for some months.

Zahn said: “Our expectation would be that a trade deal eventually gets done; however, we recognise there’s a not inconsequential chance of a hard Brexit. Against such a background, we reiterate our view that it makes sense to be active in the management of fixed income portfolios. Investors will likely have to react to news flow coming out from Westminster and Brussels.”

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