décembre 3, 2021

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Brussels vows to ‘not brink’ over EU banks access to UK clearing

The EU’s head of financial services has vowed to avoid market instability or a « cliff edge » over a decision on European banks’ access to UK clearing houses, comments that will raise investor expectations that Brussels is preparing to extend its temporary permit.

Mered McGuinness said the European Commission will not engage in « any sudden swings » over the licensing decision that allows European banks to do billions of dollars in deals in London until the middle of next year. She said that a decision in this regard may come within weeks.

However, Ireland’s financial services commissioner urged market participants to take seriously the commission’s request for more euro-denominated derivatives business to move into the EU over the long-term, following the UK’s decision to exit the single market.

Instability

« We have to make sure that there is no short-term instability, but we also have to look at our long-term interests, » McGuinness said in an interview. “They should read my lips and hear what I have to say. We are looking at this as a strategic issue for us in the medium and long term.”

European and US banks and asset managers have been urging the committee to extend its « parity » decision again to access UK clearinghouses beyond next June given the massive amount of liquidity in the City of London market. Last month, they called on the European Union to take a « long-term approach » to the issue, to give the market more time to prepare.

However, the Commission wants to see business shift back to the EU because it is unhappy with the financial stability risks of handling up to €80 trillion of open contracts in a market that is no longer under its direct supervision. Clearinghouses sit between trades and prevent defaults from bouncing back in the rest of the market.

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The committee’s problem is that there have been little signs of a shift in business towards the EU’s financial capitals since the UK left the single market at the beginning of the year. London-based LCH still handles about 90 per cent of all euro-denominated derivatives, according to data provider Ostra.