by Huw Jones
LONDON, Feb 8 (Reuters) – The European Union on Tuesday renewed the authorization granted to banks in the currency bloc to use British clearing houses.
The new deadline is June 30, 2025 and European officials have indicated that this may well be the last extension of the equivalence granted to London establishments.
Clearing houses act as intermediaries between sellers and buyers on the equity, bond and derivatives markets to ensure the proper execution of transactions even in the event of default by one of the parties.
This financial activity has become a point of contention between London and Brussels, which is seeking to relocate it to other continental financial centers, notably Frankfurt, following Brexit.
The LCH division of the London Stock Exchange handles over 90% of euro interest rate swaps.
EU Financial Services Commissioner Mairead McGuinness said she would propose measures to reduce “overreliance [de l’UE]” with regard to the main clearing houses located outside the Union and to strengthen the attractiveness of those based in the bloc while tightening their supervision.
The EU was forced to extend the clearing authorization for LCH and two other London clearing houses, ICE and LME Clear, after failing to convince banks and their customers to transfer operations to Eurex Clearing, the clearing house of Deutsche Boerse in Frankfurt.
EU officials believe that three years will be enough to repatriate the bulk of the compensation without a further extension being necessary.
“It’s clearly the end, there will be no extension after these three years,” said a European official.
Eurex focuses on euro-denominated transactions, but banks say they want to stick with LCH which offers clearing in multiple currencies.
Some banks have warned they may transfer clearing from London to the United States where clearinghouses have long-standing contacts with European customers. (Reportage Huw Jones, French version Laetitia Volga, edited by Blandine Hénault)