LONDON (Reuters) - The European Union stepped up preparations on Friday for a "no deal" Brexit, with its regulators saying they would implement plans to ensure that trillions of euros in cross-border derivatives transactions would not be disrupted.
Britain and the EU are due on Sunday to endorse a divorce deal that includes a transition period from Brexit next March until the end of 2020, but it is unclear if there is enough support in Britain's parliament to vote it through.
The European Securities and Markets Authority (ESMA) said on Friday it would begin the process of temporarily "recognising" clearing houses in Britain so they could continue clearing derivatives trades for EU customers after Brexit if no transition is in place.
LCH, an arm of the London Stock Exchange <LSE.L>, clears more than 90 percent of interest rate swaps in Europe, contracts that allows banks and companies to shield themselves against unexpected moves in interest rates harming their business.
ESMA was given the green light to put contingency plans in place by the European Commission earlier this month, and it has already announced other measures to ensure stability in financial markets in case of a no deal Brexit.
"ESMA has already started engaging with UK CCPs (clearing houses) to carry out preparatory work," the EU watchdog said in a statement.
The Bank of England has said preparations in case of a no deal Brexit were urgently needed, but Brussels had insisted for months it was up to the private sector to act first.
Brussels has said it would only give temporary permission for cross-border clearing to continue in a no deal Brexit. EU policymakers and the European Central Bank want to see more euro denominated clearing being located in the euro zone, under the bloc's direct supervision, once Britain becomes a non-EU state.
(Reporting by Huw Jones and Clara Denina; Editing by Jason Neely and Mark Potter)