Jay Clayton, the chief of the U.S. Securities and Exchange Commission (SEC), urged European Union and U.K. lawmakers to prepare for a no-deal Brexit, which could potentially wreak havoc on markets across the globe, Financial Times reported.
Clayton said he’d like to see strong commitments in place to ensure that essential functions of the market will continue unaffected regardless of whether the U.K. decides to flee the EU without a withdrawal agreement. His main concerns are non-centrally cleared derivatives contracts and investment management.
“Some period of adjustment would be good,” Clayton said. “The intricacies of our financial system are significant, and it’s difficult to identify all the ways in which a decree that something is no longer valid may impact.”
As the date for Brexit – March 29, 2019 – gets closer, Clayton and other regulators have continuously warned about the potentially devastating effects of a no-deal exit.
Christopher Giancarlo, the outgoing chairman of the Commodity Futures Trading Commission (CFTC), an organization that regulates derivatives contracts, also issued a similar warning.
In Britain, politics about the issue are split, and the government can’t agree on terms of the withdrawal. The country’s Prime Minister Theresa May has delayed a vote on her own exit deal until next month.
Clayton said he’s increasing the number of SEC workers tangling solely with the Brexit issue, mainly because of the potential of the no-deal scenario.
“If you asked me that nine months ago, I would have said, boy it would surprise me. If you’re asking me today … let me put it this way, I think it’s prudent for me to spend time thinking about what that means,” he said.
The EU has recently said it would allow European companies temporary access to U.K. clearing houses that dominate the global derivatives market, in case of a no-deal exit.
Other organizations, like the Paris-based European Securities and Markets Authority, has also taken steps, including the removal of regulatory obstacles to contracts being moved into the EU.
Clayton called on European companies to give more information about how they’re preparing for the move. “For some companies, this is obviously going to be a significant event, and I’d like to see them starting to disclose how they intend to handle it,” he said.