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Brussels has proposed extending EU banks' access to UK derivatives clearinghouses for a further three years in a victory for the City of London.
The European Commission announced on Wednesday that it has put forward a new so-called “equivalence decision”, which will allow banks and other financial institutions in the bloc to use some of the world’s most important market facilities in London until June 2028.
EU politicians have sought to seize the lucrative Euro-denominated clearing industry Since the Brexit vote in 2016, it has accepted that its financial system remains dependent on the UK, which dominates the global derivatives clearing business.
Clearing Houses reduce market risk by standing between two parties in a trade.
London often deals with deals with a nominal value of about $3.5 trillion per day. It is a global center for trading interest rate derivatives and Brent crude oil, with clearing of trades taking place on the London Stock Exchange Group's LCH and on the Intercontinental Exchange.
European derivatives traders have lobbied hard for an extension of 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 allow it to operate until June 2028, but such opposition is highly unlikely, officials said.
The committee said the UK's clearing houses were vital to its plans to build a single market for savings and investments.
“Two (UK) clearinghouses have been identified by the European Securities and Markets Authority as being systemically important for financial stability in the EU,” financial services spokesman Olof Gehl said, referring to LCH and ICE.
He added: “There is therefore a need to extend the equivalence decision to avoid any risks to our financial stability in the short term, and to give certainty and clarity to EU financial market participants.”
But he added that Brussels was committed to building a competitive industry. Last year, it approved an updated European Market Infrastructure Regulation that will require EU banks to maintain “active accounts” at EU clearinghouses for some products, and if users exceed minimum limits in other products.
The regulation includes “measures that will improve the attractiveness and competitiveness of EU clearing markets. This will help reduce the EU’s over-reliance on UK clearing houses in the medium term,” Gill said.
Pascal Kernes, of the European Services Forum, which represents business services companies 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 to ‘reset’ the relationship between the EU and the UK,” he added.
The two sides began talks to improve trade relations. UK Chancellor Rachel Reeves met her EU counterparts in December, calling on them to drop barriers to City businesses. She said it could boost the EU's growth by channeling international investment into the bloc.
Clearing is the only part of financial services that has been given equivalence since Brexit.
