EU finance lobby calls for extended access to UK clearinghouse: CityAM
A trio of major pressure groups for the financial services industry in Europe have called on Brussels to expand EU access to London clearing houses amid warnings of financial instability.
The groups wrote to the European Commission today, warning “that there is a significant risk of market disruption for EU clearing members and their customers” if the deal is not extended after June of l ‘next year.
UK derivatives clearinghouses, such as the central London Clearing House (LCH), have been allowed to continue operating in the EU on a temporary basis until June 2022 in order to ensure financial stability after the Brexit.
It was one of only two areas, out of 40, where the EU granted equivalency to the UK after Brexit.
LCH acts as a clearinghouse for the vast majority of EU derivatives trading, meaning that a loss of access would create potential chaos in the financial system.
The International Swaps and Derivatives Association, the Association for Financial Markets in Europe and the European Banking Federation have written a joint letter to European Financial Services Commissioner Mairead McGuinness asking for an extension of the equivalency decision.
The letter, seen by Reuters, read: “We respectfully ask the commission to provide clarification as soon as possible and well before March 2022 in order to avoid negative financial, business, operational and level playing field effects. “
Clearing houses act as official intermediaries for buyers and sellers of derivative contracts.
Their presence is supposed to ensure that buyers and sellers honor their contracts, while ensuring financial stability.
LCH has over £ 80 trillion of euro clearing in circulation and this represents only a quarter of the total clearing house activity.
Bank of England Governor Andrew Bailey has repeatedly said any decision by the EU not to expand access to clearing in the UK would pose a serious problem for financial stability.
Earlier this week he said: “If [the EU] want to make the decision to break the system, then it’s important to consider the financial stability risks that come with fragmentation.
The EU declined to comment.