Brexit: City firms to be cut off from EU derivatives clearing access after June 2025
UK-based derivatives clearing houses will no longer have access to the European Union after June 2025, the EU’s financial services chief has said.
Mairead McGuinness confirmed that the EU will no longer allow non-EU, UK-based firms to operate within the bloc from the summer of 2025,
“I am very clear that June 2025 is the end of equivalence for UK clearing houses.”Mairead McGuinness at a Politico event.
Britain’s departure from the EU has meant the City is increasingly severing financial services ties with the bloc.
In response to the news, City-based Javier Hernani, Head SIX Securities Services, told City A.M. this morning: “We have to make the most of these three years in order to ensure that the stability and security of European clearing is not compromised.”
“Financial hubs in the region will be working to develop the capacity to handle the increase in volumes.”Javier Hernani, Head SIX Securities Services
“However, one can’t help but think that this is not the final chapter in this long running debate. Ultimately, every market participant has the same goal of reducing costs and risks and, crucially, increasing capital efficiencies around the posting of collateral,” Hernani said.
HMcGuinness’ comments come only weeks after Brussels has climbed down from a deadline to pull European finance firms’ access to London clearing houses.
Onshoring clearing activity to Europe has long been one of EU politicians’ main goals after Brexit.
However, the bloc’s top finance firms have been reluctant to move clearing activity from the City to Europe due to the enormous administrative and monetary costs of doing so.
London processes the vast majority of Euro-denominated financial contracts, meaning cutting the City off from EU firms after Brexit would likely gum up the normal functioning of Europe’s financial system.
European finance hubs simply lack the clearing capacity to replace London’s work load.
The extension of the deadline, which is now double the initial period Brussels had pencilled after Britain left the single market at the end of 2020, will prevent any “short-term ciff-edge effects” stemming from financial market volatility, McGuiness, the European commissioner for financial services, said in January.
The existing permit scheme was set to expire this June.
Conor Lawlor, managing director for capital markets at UK Finance, the banking lobby group, said about the three year extension last month: “Given the interconnected nature of financial markets and the important role that UK clearing houses play, this decision provides needed certainty for EU and global customers and clients accessing the UK’s clearing infrastructure.”