EU wants to extend compensation in London for three years

by Huw Jones

LONDON, Jan 18 (Reuters) – The European Union is proposing to renew for three years from June the authorization granted to banks in the currency bloc to use London clearing houses, the European Commissioner for Financial Services announced on Tuesday.

Mairead McGuinness had already announced last November that this authorization would be extended for an unspecified period from June 2022, when it is due to expire, in order to allow more time to transfer clearing operations from London to an EU country. EU following Brexit.

“We are currently consulting Member States on this draft equivalence decision, which will take the form of an implementing act. We are considering proposing an extension of the equivalence decision for three years – until the end of June 2025 “said a spokesperson for Mairead McGuinness in a statement.

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.

Brussels is trying in vain to convince EU banks to relocate these activities carried out by stock market operators such as the London Stock Exchange – whose LCH branch handles more than 90% of clearing operations on interest rate hedges (“swaps”) interest in euros – to the Deutsche Börse in Frankfurt.

Banks have warned that mandating the relocation of clearing will backfire.

Mairead McGuinness said she would launch a public consultation in the coming weeks on the steps needed to make the EU an attractive clearinghouse.

“This public consultation will feed into a clearing strategy aimed at reducing our overreliance on UK clearing houses (“CCPs”) in the medium term,” said spokesperson Mairead McGuinness. (Reportage Huw Jones, French version Laetitia Volga, edited by Blandine Hénault)