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Brussels has proposed extending EU banks’ access to UK derivatives clearing houses for another three years in a victory for the City of London.
The European Commission on Wednesday announced it had tabled a new so-called “equivalence decision”, which would allow banks and other financial institutions in the bloc to use some of the world’s most critical market utilities in London until June 2028.
EU politicians have sought to capture the lucrative euro-denominated clearing industry since the Brexit vote in 2016 but have accepted its financial system still depends on the UK, which dominates the global business of derivatives clearing.
Clearing houses reduce market risk by standing between two parties in a trade.
London frequently handles deals nominally worth around $3.5tn a day. It is a global centre for trading interest rate derivatives and Brent crude oil, with clearing of deals handled at London Stock Exchange Group’s LCH and at Intercontinental Exchange.
European derivatives traders had lobbied hard to extend the City’s permit, which expires on June 30 after three years. Member states have five days to object to the commission’s proposal to let it run until June 2028, but such opposition was highly unlikely, officials said.
The commission said UK-based clearing houses were vital to its plans to build a single market in savings and investments.
“Two [clearing houses in the] UK have been identified by the European Securities and Markets Authority as systematically important for the EU’s financial stability,” said Olof Gill, spokesman for financial services, referring to LCH and ICE.
“An extension of the equivalence decision is therefore needed to avoid any risks to our financial stability in the short term, and give certainty and clarity to EU financial market participants,” he added.
But he added that Brussels was committed to building up a rival industry. Last year it approved an updated European Market Infrastructure Regulation that will oblige EU banks to hold “active accounts” at EU-based clearing houses for some products, and if users cross minimum thresholds in others.
The regulation “contains measures that will improve the attractiveness and competitiveness of EU clearing markets. This will help reduce in the medium term the EU’s overreliance on UK clearing houses,” said Gill.
Pascal Kerneis, of the European Services Forum, which represents services companies trading internationally, welcomed the move.
“It will give a clearer perspective to operators in the EU financial market in the medium term.
“This will also give a good political signal for a proper ‘reset’ of the EU-UK relationship,” he said.
The two sides have begun talks to improve trade ties. UK chancellor Rachel Reeves met her EU counterparts in December and called for them to drop barriers to City firms. She said they could boost EU growth by funnelling international investment to the bloc.
Clearing is the only part of financial services that has been granted equivalence since Brexit.
