Britain’s central bank directs all banks to build Brexit cushion by March 2019

The move has the twin objectives of cushioning Britain in case of a cliff-hanger Brexit as well as provide sufficient room for maneuvering to British lawmakers who are yet to hammer out a Brexit deal with the EU.

In a strategic step, Sam Woods, the Deputy Governor of Britain’s central bank, the Bank of England (BoE), has issued a directive that all banks in the country must hold sufficient cash reserves to withstand the shock of a potential disorderly Brexit; the move lends further to the possibility of a ‘no-deal’ Brexit.

The move is aimed at ensuring that Britain’s departure from the European Union is as smooth as possible for financial markets, said Woods.

“Just in case things go badly we have been working with firms to ensure they have in place liquidity sufficient to accommodate a severe dislocation in financial markets,” said Woods to an audience of bankers. “We all need to be ready for a range of outcomes.”

Britain is currently pushing legislation to allow banks and insurers in the EU to continue serving UK customers after Brexit – even in the case of a no-deal Brexit.

“We encourage all firms to opt into the regime because it will provide certainty until March 2022, independent of the existence and duration of any wider implementation period,” said Woods. “This is a straightforward, common sense way of lowering the risk of disruption to the City of London”.

He has urged his EU counterpart to mirror these efforts so as to ensure that financial contracts don’t face disruptions irrespective of how Britain exits the EU.

British regulators need to “urgently” begin talks with their EU counterparts on joint cross-border memorandums of understanding, opined Andrew Bailey, chief executive of the Financial Conduct Authority (FCA).

“This technical, regulator-to-regulator coordination is essential to minimize disruption in a no-deal situation,” said Bailey.

In comments that are likely to not go down with pro-Brexit lawmakers, Bailey said, there are some very good reasons for Britain to “seek to stay closely aligned to the EU” as far as financial regulations go.

Bailey said “Britain and the EU could commit to acknowledging formally that their respective financial rules were equivalent as early as possible to allow two-way business and remove potential cliff edges by next March.”

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