The City of London has gained a powerful ally in the fight to keep a key business in the UK post-Brexit

German, British and European Union flags fly in front of the Reichstag building in Berlin, Germany July 20, 2016.

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German, British and European Union flags fly in front of the Reichstag building in Berlin, Germany July 20, 2016.
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REUTERS / Hannibal Hanschke / File Photo

  • Germany’s financial regulator BaFin has sided with the Bank of England and demanded that Brussels take action to prevent mayhem in the derivatives markets post-Brexit.
  • The move shows an alignment with the BoE which has warned that $67 trillion of interest rate swaps and other derivatives could be in trouble if no political support is given to the banks.
  • The EU Commission has so far expressed the view that financial regulation post-Brexit is for the banks and other financial companies to sort out.
  • “It is almost impossible to fix that problem exclusively just by one side of the stakeholders involved” BaFin’s president, Felix Hufeld told Bloomberg, adding, there has to be “a solution on a political level.”

The German financial regulatory authority, BaFin, has demanded that EU officials in Brussels take urgent action to prevent mayhem in the derivatives market after Brexit.

The change in German policy is a sign of support for the Bank of England which has warned that $67 trillion of interest rate swaps and other derivatives could flounder if a plan is not agreed on between Europe and the UK before Brexit, The Daily Telegraph reported.

The EU Commission has so far expressed the view that financial regulation post-Brexit is for banks and other financial companies to sort out, even in the event of a wider deal, despite European, Asian and US banks arguing that they cannot do it alone, and that the fall-out if no action is taken could create a global financial shock.

“It is almost impossible to fix that problem exclusively just by one side of the stakeholders involved, let it be the industry itself or individual supervisors,” BaFin’s president, Felix Hufeld told Bloomberg at a forum in Frankfurt, adding that the industry must be taken seriously.

There has to be “a solution on a political level” outlining a legislative or regulatory structure to prevent disruption, Hufeld said.

Britain has taken measures to try and guarantee “contract continuity” for foreign banks operating in the City, even if passporting rights are lost, but the EU hasn’t yet reciprocated.

The Bank of England and German regulator BaFin are now working to the same goal, an indication that Germany is starting to step into the negotiations as the threat of a no-Brexit deal persists.