LONDON (Reuters) - The European Union’s markets watchdog has proposed a temporary fix to avoid uncleared derivatives contracts worth trillions of euros being disrupted if there is a no-deal Brexit next March.

FILE PHOTO: British and EU flags are adjusted prior to the arrival of British Prime Minister Theresa May and European Commission President Jean-Claude Juncker, ahead of the European Union leaders summit in Brussels, Belgium October 17, 2018. REUTERS/Francois Lenoir/File Photo

The European Securities and Markets Authority (ESMA) said the changes it was proposing would give banks one year to “repaper” or shift their uncleared, over-the-counter derivatives positions from London to the EU.

Such moves would not trigger the requirement to clear those contracts. Counterparties can begin taking steps to shift contracts - which requires permission from the end-customer - but make any action conditional on a no-deal departure, ESMA said.

The fix falls short of the “grandfathering” that industry has called for, whereby EU regulators would allow contracts spanning years to run to maturity even if Britain left the bloc without a deal.

ESMA said a general grandfathering was not appropriate and, given the urgency of the matter, it would not be holding a public consultation on its proposals.

It said EU regulators were considering a similar approach for moving derivatives contracts without triggering a requirement to post collateral.

The Bank of England last month called on the EU to urgently deal with potential disruption to cross-border uncleared contracts worth a notional 30 trillion pounds, with 18 trillion maturing after Brexit.

Britain and the EU are aiming to secure a divorce settlement that includes a business-as-usual transition period from next March to the end of 2020.

“The proposed regulatory change supports counterparties’ Brexit preparations and maintains a level playing field between EU counterparties, while addressing potential risks to orderly markets and financial stability,” Steven Maijoor, ESMA chair, said in a statement on Thursday.

ISDA, a global derivatives industry body, said the “helpful” step from ESMA would reduce one significant challenge, but there were other big hurdles to transferring so many contracts.

“We remain concerned both about the ability to expedite transfers and the inability of EU27 clients to effect lifecycle events on derivatives contracts with a UK counterparty, as of Brexit day,” said Roger Cogan, head of European public policy at ISDA.

The changes outlined on Thursday will require the sign-off of the EU’s executive, the European Commission.