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European firms ponder moving financial contracts during looming Brexit

European firms ponder moving financial contracts during looming Brexit

European companies could be forced to move financial instruments worth billions of euros as the UK prepares to leave the EU

The process, known as repapering may be required for syndicated loans, currency swaps and other derivatives taken out by EU-based corporates and booked through banks in the UK.

Depending on how Brexit negotiations go, regulations that currently cover London—the heart of UK and Europe’s financial industry may stop applying as early as March 2019. That could make it necessary to relocate thousands of financial products that are used by corporate to an EU-based financial entity.

Company executives, whore are mired in uncertainty about the final outcome of the divorce negotiations, could face significant amounts of paperwork—and even additional costs.

Stefan Behr, head of corporate banking for Europe, Middle East and Africa at JPMorgan Chase & Co. stated: “CFOs and treasurers are trying to ascertain what Brexit means for their financing arrangements.”

“There are thousands and thousands of financial contracts…which could potentially be affected.” He added.

If the UK becomes a so-called ‘third country’ after a hard Brexit—loans, securities and derivatives totaling approximately $2.7trn might have to be shifter to EU-based bank entities, estimated consulting firm Boston Consulting Group UK LLP.

It said that about 68% of all trading in London is done on behalf of clients, including corporate, from EU-member states.

Negotiators for the UK and the EU are still working on a separation agreement that would set the terms of Britain’s departure from the bloc and clarify the rules for financial services in the future. Without that, treasurers, lawyers and advisers will struggle to come up with definitive answers about whether financial instruments will have to be altered or not.

A weekend summit between UK and EU representatives failed to resolve the differences, and slimmed the odds of a deal alter this week when the leaders met to discuss Brexit.

The Bank of England earlier this month urged the EU to take steps to allow existing financial contracts to be honored after the UK leaves the bloc.

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