Brussels proposes expanding access to UK clearinghouses for EU banks

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In a win for the City of London, Brussels has proposed extending EU banks' access to UK derivatives clearing houses for a further three years.

The European Commission announced on Wednesday that it has introduced a new equivalence decision that will allow banks and other financial institutions in the bloc to use some of the world's most important market utilities in London until June 2028.

EU politicians have been trying to take control of the lucrative euro-denominated clearing industry since the 2016 Brexit vote, but have acknowledged the financial system remains dependent on Britain, which dominates the global business of derivatives clearing.

Clearing houses reduce market risk by placing themselves between two parties in a transaction.

London frequently handles approximately $3.5 trillion in nominal transactions per day. It is a global center for interest rate derivatives and Brent crude oil trading and handles trading for London Stock Exchange Group LCH and the Intercontinental Exchange.

European derivatives traders 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 run it until June 2028, but such opposition is unlikely to arise, the official said.

The committee said a UK-based clearinghouse was essential to its plans to create a single market for savings and investments.

two [clearing houses in the] Referring to LCH and ICE, financial services spokesman Olof Gill said the UK had been identified by the European Securities and Markets Authority as systemically important to the financial stability of the EU.

An extension of the equivalence decision is therefore necessary to avoid risks to financial stability in the short term and provide certainty and clarity to EU financial market participants, he added.

But he added that Brussels was committed to building a competitive industry. Last year, EU banks approved updated European Market Infrastructure Regulations that mandate users to have an active account at an EU-based clearinghouse for some products and if users exceed minimum thresholds for other products.

The regulation contains measures to improve the attractiveness and competitiveness of the EU clearing market. This will help reduce the EU's over-reliance on UK clearinghouses in the medium term, Gill said.

Pascal Kerneis of the European Services Forum, which represents internationally trading services companies, welcomed the move.

This will provide a clearer perspective for operators of EU financial markets in the medium term.

This would also give a good political signal for a proper reset of EU-UK relations, he said.

The two sides began negotiations to improve trade relations. British Prime Minister Rachel Reeves met EU representatives in December and called for barriers to city businesses to be removed. She said the EU's growth could be boosted by focusing international investment in the EU.

Clearing is the only part of financial services that has been granted parity after Brexit.

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