Derivatives perform a critical function by enabling companies and investors to hedge their risks. Right now, though, the only effective clearing solutions for many of these products are located in the United Kingdom. Given this situation and the prospect of a hard Brexit, and assuming a transitional solution is not implemented, it is important to assess how an inability to access UK central counterparties (CCPs) after 29 March might affect the capacity to finance the economy and financial stability.

This was the focus of a position paper published by AMAFI  mid-October (AMAFI / 18-59), which sought to raise the awareness of the issue to European decision makers. This concern seems to have been taken into account by Commissioner Valdis Dombrovskis, who said in an interview with the Financial Times in late October that the Union would have to temporarily recognise UK CCPs if no agreement was reached. This decision was then repeated in a communication published by the European Commission on readiness for the UK exit. Meanwhile, ESMA published a release in late November in which it said that it supported the Commission’s approach and that it had already begun working with UK CCPs to prepare for their temporary recognition on 30 March 2019.