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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 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 services in London until June 2028.
EU politicians sought to capture the lucrative clearing industry denominated in euros since the Brexit vote in 2016, but have accepted that their financial system is still dependent on the UK, which dominates the global derivatives clearing business.
Cleaning houses reduce market risk by standing between two parties in 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 trades cleared on the LCH London Stock Exchange Group and the Intercontinental Exchange.
European derivatives traders have lobbied hard to extend the city’s license, 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 is highly unlikely, officials said.
The commission said UK-based clearing houses were key to its plans to build a single market for savings and investments.
“Two [clearing houses in the] The European Securities and Markets Authority has identified the UK as systemically important to the financial stability of the EU,” said Olof Gill, a spokesman for financial services, referring to LCH and ICE.
“The extension of the equivalence decision is therefore necessary to avoid any risks to our financial stability in the short term and to provide certainty and clarity to the participants in the EU financial markets,” he added.
But he added that Brussels is committed to building a competitive industry. Last year, it approved an updated European Market Infrastructure Regulation that will oblige EU banks to have “active accounts” with EU-based clearing houses for some products and, if customers cross minimum thresholds, for 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, from the European Services Forum, which represents international service companies, welcomed the move.
“This will provide a clearer perspective to operators on the EU financial market in the medium term.
“This will also give a good political signal for a proper ‘reset’ of EU-UK relations,” he said.
The two sides have started talks on improving trade ties. UK Chancellor Rachel Reeves met her EU counterparts in December and urged them to remove barriers to City companies. She said they could boost EU growth by channeling international investment into the bloc.
Clearing is the only part of financial services that has been recognized as equivalent after Brexit.
