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Dutch watchdog urges schemes to prepare for a hard Brexit

David Davis and Michel Barnier at a Brexit press conference in October 2017

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Dutch supervisor DNB has urged pension funds to prepare for a so-called ‘hard’ Brexit, as the preliminary agreement for a transition period after the UK leaves in March is not yet legally binding.

On DNB’s website, Paul Hilbers, director for financial stability, said that if the UK and the EU failed to reach an agreement on their future relationship, the transitional arrangement could be cancelled.

He warned that a hard Brexit could come without equivalence certificates for the UK, which are necessary for companies and financial institutions to access each other’s markets.

DNB’s financial stability director explained that pension funds ran the concrete risk of loosing acces to infrastructure in the UK, such as central counterparty (CCP) clearing.

The implementation of over-the-counter derivatives contracts, concluded with UK-based parties and extending beyond the Brexit date, could also become stuck, he warned.

“These counterparties would possibly no longer have the required authorisation to offer investment services to EU counterparties, or conduct investment activities related to these derivatives contracts,” Hilbers said.

Meanwhile, the UK’s Financial Conduct Authority (FCA) said it continued to prepare for a range of scenarios, including a hard Brexit.

The FCA is to be tasked by the UK’s treasury department with amending and maintaining EU rules and technical standards after the UK’s membership ends on 29 March 2019. This is in line with the EU (Withdrawal) Act, recently passed by the parliament, which allows the transferral and conversion of EU law to UK law and gives ministers powers to make amendments as necessary.

The FCA said its work would “sit underneath the EU regulations and directives and provide technical detail of how those requirements must be met”.

Last March, the UK and the EU agreed on a transitional period from 29 March to December-end 2020.

During this time, EU law would remain applicable to the UK, with firms, funds and trading venues continuing to benefit from passporting between the UK and EEA as they do today, according to the FCA.

“Obligations derived from EU law would continue to apply, and firms must continue with implemention plans for EU legislation that is still to come into effect before the end of December 2020,” the FCA added.

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