
The European Securities and Markets Authority and the Bank of England agreed this week to maintain cooperation regarding the regulation of derivatives trading in the event of a “No-Deal” Brexit. The plan involves European granting of “equivalence” to British clearing-houses, which allows for British clearing-houses to be recognized as being equivalently regulated relative to their continental counterparts. The move would prevent the disruption in the $400 trillion global derivatives market that would occur if the UK, a major center of euro-denominated trading, were to break with the EU with no deal in place for the future relationship. However, this arrangement is only a temporary measure and would be difficult to accommodate in the event of future EU changes to regulatory practices. Future concerns about oversight and “extraterritorial” regulation could lead to mutual distrust and further political tension.