Unlock Editorial Digest for Free
FT editor Roula Khalaf chooses her favorite stories in this weekly newsletter.
Brussels has proposed extending EU banks’ access to Britain’s derivatives clearing house for a further three years, in a victory for the City of London.
The European Commission announced on Wednesday that it had proposed a new so-called “equivalence decision” that would allow banks and other financial institutions within the EU to use London’s utilities in some of the world’s most important markets until June 2028.
Since the 2016 Brexit referendum, EU politicians have sought to seize the lucrative euro-denominated clearing industry but acknowledge that its financial system remains dependent on Britain, which dominates the global derivatives clearing business.
Clearinghouses reduce market risk by standing between parties to transactions.
London regularly handles transactions with a nominal value of approximately US$3.5 trillion per day. It is a global trading center for interest rate derivatives and Brent crude oil, with trade clearing at London Stock Exchange Group’s LCH and Intercontinental Exchange.
European derivatives traders have been lobbying hard to extend the City’s license, which expires on June 30 after three years. Officials said member states have five days to object to the commission’s proposal to run it until June 2028, but such objections are extremely unlikely.
The commission said UK clearing houses were vital to its plans to create a single market for savings and investments.
“Two Britains [clearing houses] “The European Securities and Markets Authority has identified them as systemically important for EU financial stability,” financial services spokesman Olof Gill said of 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 to 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, it approved updated European market infrastructure regulations that will require EU banks to hold “active accounts” with EU clearinghouses for certain products and if users exceed minimum thresholds in 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 clearing houses in the medium term,” Gill said.
Pascal Kerneis of the European Services Forum, which represents internationally traded services companies, welcomed the move.
“In the medium term, this will provide operators of EU financial markets with a clearer perspective.
“It would also send a good political signal for a proper ‘reset’ of relations between the EU and the UK,” he said.
The two sides have begun talks to improve trade relations. Chancellor Rachel Reeves met EU counterparts in December and called on them to remove barriers to City businesses. She said they could help the EU grow by bringing international investment into the EU.
Clearing is the only part of financial services to be granted equal status since Brexit.
