© Reuters. FILE PHOTO: Mairead McGuinness speaks during her hearing as the new EU financial services commissioner before the European Parliament’s economic affairs committee, in Brussels, Belgium, October 2, 2020. REUTERS/Yves Herman/File Photo
By Huw Jones
LONDON (Reuters) – The European Union agreed on Tuesday to prolong until June 30, 2025 permission for Britain’s clearing houses to continue serving customers in the bloc, with officials saying it would be the final extension.
Clearing has become a Brexit battle ground between Britain and the EU as the bloc seeks oversight of euro-denominated trades.
The London Stock Exchange’s LCH unit in London clears 90% of euro interest rate derivatives, a contract widely used by companies in the EU to insure themselves against unexpected moves in borrowing costs.
Mairead McGuinness, financial services chief at the executive European Commission, said she will also propose measures to reduce “our excessive dependence” on major clearers based outside the bloc and to improve the attractiveness of EU-based clearers while enhancing their supervision.
The EU was forced to extend clearing permission for LCH and two other clearers in London, ICE (NYSE:) and LME Clear, after failing to persuade banks and their customers to shift the activity from London to Deutsche Boerse (DE:)’s Eurex in Frankfurt.
EU officials believe three years will be long enough to shift enough business without the need for a further extension.
“It’s clearly the end of the road, there will be no extension after those three years,” an EU official said.
The EU’s consultation paper is asking for views on possible “negative and positive” incentives, such as forcing EU market participants to open and use a clearing account with the clearer in the bloc.
Capital charges could also be used to encourage a shift in clearing across the Channel, along with forcing more private and public entities in the EU to clear their trades, an EU official said.
The four-week consultation period will be followed by a “communication” setting out the way forward, with a legislative proposal in the third quarter.
EU officials declined to say how much clearing would need to move to satisfy the bloc’s authorities.
Banks have warned they could shift clearing from London to the United States, where clearing houses already have long-term access to EU customers.
Eurex focuses on euro-denominated clearing but banks say they want to stick with LCH in London because it offers clearing across several currencies to cut the amount of capital and collateral needed.
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