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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 announced on Wednesday that it had introduced a “new equivalence decision” which will allow banks and other financial institutions in the bloc to use some of the world’s most critical market services in London until June 2028.
EU politicians have sought to capture the lucrative euro clearing industry since the Brexit vote in 2016, but have acknowledged that its financial system is still dependent on the UK, which dominates the global derivatives clearing business.
Clearing houses reduce market risk by standing between two parties to a trade.
London often handles deals with a nominal value of around $3.5 trillion a day. It is a global hub for trading interest rate derivatives and Brent crude oil, with deal clearing handled on London Stock Exchange Group’s LCH and the 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 an objection 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 systemically important to EU 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 risk to our financial stability in the short term and to provide certainty and clarity to EU financial market participants,” he added.
But he added that Brussels was committed to building a rival industry. Last year it adopted an updated European Market Infrastructure Regulation that will force EU banks to maintain “active accounts” with EU-based clearing houses for certain products, and if users exceed minimum thresholds in others.
The regulation “contains 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,” said Gill.
Pascal Kerneis, of the European Services Forum, which represents services companies trading internationally, welcomed the move.
“This will give a clearer perspective to operators in the EU financial market in the medium term.
“It will also give a good political signal for a proper ‘reset’ of EU-UK relations,” he said.
Both sides have started talks to improve trade ties. UK Chancellor Rachel Reeves met her EU counterparts in December and called on them to remove barriers to City firms. She said they could boost the EU’s growth by driving international investment in the bloc.
Clearing is the only part of financial services that has been given equivalence since Brexit.
