The UK’s financial system is prepared for a no-deal Brexit but EU businesses and households could be at risk due to a “lack of action” from Brussels, according to the Bank of England.
The Bank said the UK’s banking system was strong enough to deal with the economic shock of leaving the EU without a deal and that financial stability risks had been largely mitigated.
But the outstanding risks would primarily affect firms and households in the EU, it said.
“Some disruption to cross-border services is possible and, in the absence of other actions by EU authorities, some potential risks to financial stability remain,” the Bank’s Financial Policy Committee (FPC) said.
The FPC said that while the UK has ensured its borrowers can use EU-based banks after Brexit, EU countries had failed to be as proactive.
It said that UK and global banks transferring activities to EU-incorporated entities - in places such as Frankfurt or Amsterdam - were not yet able to offer EU citizens full banking services as only 10-20 per cent of major clients in the EU had completed the paperwork.
It added that the “short period” left to migrate businesses and assets before Brexit could also disrupt EU services.
The “absence of action” by the European Commission to ensure the flow of personal data may also restrict EU customers accessing UK financial services.
The Bank also announced a new liquidity facility to lend euros after Brexit to make sure banks don’t run out of the currency.
The Liquidity Facility in Euros (LiFE) would be available for banks and building societies on a weekly basis from 13 March.
The Bank warned that financial stability was not the same as market stability and that the UK would be affected by the latter in the event of a no-deal.
The FPC said foreign investor appetite for UK assets could diminish, sterling and equities would fall and conditions for UK households and businesses would tighten.