EU plot to raid £560tn London clearing houses deals blow as EBF opposes plan | Politics | News

Brussels has pledged to reduce the EU’s “overreliance” on the City and its €660 trillion (£563 trillion) clearing market, but the Banking Federation European Commission (EBF) has now said the European Commission’s proposal would lead to “serious market disruption”.

Clearing houses act as intermediaries in the exchange of derivatives between banks. Since the financial crisis of 2008, they have been a vital part of the financial system.

The City is Europe’s largest center for clearing activity, with the London Stock Exchange’s LCH unit in London clearing around 90% of euro interest rate derivatives.

Brexit has made cleanup an important battleground.

In line with Brussels’ desire to control euro-denominated transactions in order to build “strategic autonomy” in capital markets, after the UK’s departure he insisted that EU banks would be excluded from London, with an initial deadline of January 2020.

This has, however, been repeatedly pushed back due to financial stability concerns and reduced access to products such as mortgages.

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In January, Mairead McGuinness, chief financial officer at the European Commission’s executive, was forced to allow EU-based banks and fund managers to clear transactions in London until June 2025 after failing to persuade banks and their customers to transfer the activity of the British capital. at Deutsche Boerse’s Eurex in Frankfurt fairly quickly.

An abrupt end to cross-border clearing would have disrupted markets, but EU officials believe three years will be enough time to build European capacity to replace trade.

After Ms McGuinness launched a consultation on measures to reduce the EU’s reliance “on third-country systemic clearinghouses and to improve the attractiveness of EU-based clearinghouses”, the EBF said advised against “forced relocation” projects.

The trade body said: “EBF would like to stress that any forced relocation strategy or other coercive measures will not achieve, and would likely undermine, the goal of competitive and resilient European compensation. [market].”

The federation concluded: “We ask the European Commission to only consider measures which make clearing in the EU more attractive, without disproportionately harming other market players who are essential for the fair and efficient provision clearing services.”

In a speech at the European Central Bank in Frankfurt on Wednesday, Ms McGuinness, an Irish Conservative, compared the EU’s reliance on the City of London to its reliance on oil and gas Russians.

She said: “We have to be careful about areas where we are vulnerable to decisions made outside the EU, and therefore beyond our control.

“Energy is the biggest and most urgent example of this vulnerability right now. But we also need to watch for vulnerabilities in capital and financial services.”

Ms McGuinness said she would now propose legislation in October this year which would include incentives for using clearinghouses inside the EU and penalties for using London.

Referring again to the crisis in Ukraine, she swore: “Now is the time for Europe, the EU of 27, to take very strong decisions on financial stability and the financial system, just as we do. today very critically and very urgently around our overreliance on Russian energy.”

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