The German government is reportedly working on two emergency laws to protect cross-border insurance agreements and derivatives contracts in anticipation of a fast-approaching Brexit in March 2019.
One potential problem is what will happen to euro-denominated derivatives deals. Most of the clearing is currently made in London but may have to be moved to the continent following the UK’s exit. Deals involving clearing houses are already protected as they are backed by a default fund to ensure successful transactions even if one side goes bust.
The volumes involved are immense, amounting to some £38 trillion, according to the Bank of England.
“It’s clear that we need to start working on legislation now to prepare for a hard Brexit,” Deputy Finance Minister Jorg KUKIES recently said at a conference in Berlin. “This is a preventive measure that we want and need to take, due to the mounting time pressure.”
“Rest assured that we will do everything to reduce friction and the risks to financial market stability,” added KUKIES.
Germany joined forces with France, Spain, and Italy to plan for the impending market split. Handelsblatt Global reports that Berlin is also consulting the European Commission to ensure that European and national legislation remain in harmony.