- Reuters/Dylan Martinez
LONDON – The Bank of England warned on Monday that many firms “lack robust contingency plans” to deal with certain forms of disruption to the financial sector that could stem from Brexit.
Focusing on data sharing between Britain and the EU after Brexit, the FPC said in a statement on September 20: “Firms also lack robust contingency plans to mitigate risks to financial service provision from possible barriers to the flow of personal data between the UK and EU27.”
So far discussions of disruptions to the financial services sector after Brexit have largely focused on banks having to move staff out of the UK, and on the potential for London to lose its role as the worldwide hub for the clearing and settlement of euro denominated derivatives.
Data sharing, however, is a key area of concern for the Financial Policy Committee.
“Many firms currently rely on data centres located in the United Kingdom to provide financial services across Europe. Contingency plans are reliant on firms replacing contracts with new ones that include clauses permitting data transfer, but this could be difficult in the time available and such contracts may be subject to legal challenge,” the FPC said.
“The continued free flow of personal data will require the United Kingdom and EU27 to recognise each other’s data protection regimes as ‘adequate’, as recognised by the Government’s recent position paper.”
The FPC does not discuss in any detail what the possible impacts of an end of data sharing between the UK and the 27 EU countries would likely be, but it says it is “focused on outcomes that, even if they may be the least likely to occur, could have most impact on UK financial stability.”
Other areas of concern for the committee include the “discontinuity of cross-border contracts, in particular insurance and derivatives,” and “restrictions after Brexit on cross-border banking, central clearing and asset management service provision.”
In June, Governor Mark Carney said that the central bank is putting contingencies in place for the possibility that Britain drops out of the European Union without any deal in just under two years time.
Carney told reporters that the bank is making plans for all possible Brexit scenarios “however unlikely” to ensure it is as prepared as it can be for Brexit, and the impact it may have on financial stability.
The FPC reiterated that point on Monday, saying it is preparing for “a scenario in which there is no agreement in place at the point of exit.”