With the 29 March deadline fast approaching, here’s an update of Brexit activities the Policy & Technical team have been involved in.
The Q&As undertaken with the CBI and with support from the FCA and other key organisations (such as ICMA) have been updated to reflect the latest position on key issues such as contract continuity, SEPA access and the rules for financial institutions that do not apply to join the UK’s Temporary Permissions Regime. Our ongoing Brexit readiness poll remains open and we request members to continue to update it with their latest position.
Over the last few weeks we have been in touch with banks and corporates to learn about how they have been dealing with FX risks from a Brexit perspective. Corporates appear to be testing the limits of their hedging policy as they take advantage of current FX levels. With recent implied sterling volatility at historical highs, we are aware of a small number of corporates taking full advantage to achieve enhanced rates through outperformance trades such as Tarfs, Knock-out accruals, and improved participation barrier rates such as Forward Extra’s, Protected accruals etc. For complex structures such as these we would always counsel prudence and that the economic and accounting risks should always be fully understood before entering in such transactions. One change that has been reported is clients doing more shorter dated trades than normal, with the rationale that they don’t want to get caught out by an extreme market move should Hard Brexit happen or Article 50 be deferred. Therefore they been entering into 6-12 month trades instead of the usual 12-24 months.
Visit our Brexit pages for the latest information from the Policy & Technical team.