Press Releases


LMA warns against damaging effect on syndicated loan markets and the broader European economy in the event of a hard Brexit

03 December 2018

The Loan Market Association (LMA) has published a paper entitled "Turning off the Liquidity Tap - the consequences of a no deal Brexit on the European loan market" (the "Paper") which seeks to emphasise the number of regulatory issues which could arise in a lending context as a result of a "no deal" scenario, and the negative repercussions that this would create for the wider EU economy.

The LMA believes that the risk of substantial market disruption is more likely in view of:

  • the wide usage of wholesale loan products across the EU27;
  • the cross-border nature of lending;
  • the differences in loan market regulatory requirements between individual EU member states ("Member States"); and
  • the heavy reliance of European borrowers on loan products from UK based lenders for their day to day business needs.
  • In view of the above, the LMA believes that it is vital that transitional arrangements are put in place as soon as possible, so that borrowers are adequately protected irrespective of the manner of exit of the UK from the EU. This will prevent unnecessary economic instability and ensure the preservation of existing financing arrangements. This is also especially important given that there is no "equivalence regime" for cross-border lending or credit services or indeed associated activities such as payments and deposit-taking. However, these are all services that are currently widely used and relied upon across the EU.

    The LMA has also emphasised that, separate from regulation impacting lending itself, there exists additional EU regulation which could have a wider impact on the decision to lend or the lending process more broadly. The impact of these broader regulatory measures is such that, even if lending itself is permitted in a particular jurisdiction, other contributing factors could lead to such lending not being practical, cost effective or otherwise possible. Given the volume of lending which emanates from the UK to borrowers located in the EU27, this would result in a diminished pool of available liquidity, as well as a less competitive and possibly more costly lending environment.

    Commenting on the Paper, Nicholas Voisey, LMA Managing Director, said:

    "Hard Brexit could mean hard times for both borrowers and lenders".

    "Loans are a vital product for corporates looking to grow their businesses, and are a vital contributor to economic growth. A sudden withdrawal of rights preventing UK-based lenders from lending into the EU will be highly damaging, potentially affecting the ability of borrowers to draw under existing agreements and the willingness of lenders based in the UK to enter into future contracts."

    "Transitional arrangements must therefore be put in place as a matter of urgency in preparation for a hard Brexit in order to avoid any unnecessary disruption to both borrowers and lenders."