A trio of major lobby groups for Europe’s financial services sector have called on Brussels to extend the EU’s access to London clearing houses amid warnings of financial instability.
The groups wrote to the European Commission today, warning “there is a significant risk of market disruption for EU clearing members and their clients” if the deal is not extended past June next year.
The UK’s derivative clearing houses, such as the powerhouse London Clearing House (LCH), were given permission to continue to operate in the EU on a temporary basis until June 2022 in order to secure financial stability post-Brexit.
This was one of just two areas, out of of 40, where the EU granted the UK equivalence post-Brexit.
LCH acts as a clearing house for the vast majority of the EU’s derivatives trading, meaning 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 wrote a joint letter to European Commissioner for financial services Mairead McGuinness to call for an extension to the equivalence decision.
The letter, seen by Reuters, read: “We respectfully request the commission to provide clarity as soon as possible and well in advance of March 2022 in order to prevent negative financial, commercial, operational and level playing field effects.”
Clearing houses act as an official go-between for buyers and sellers of derivatives contracts.
Their presence is supposed to ensure that buyers and sellers honour their contracts, while also ensuring financial stability.
LCH has more than £80 trillion of outstanding Euro clearing and that is just a quarter of total activity at the clearing house.
Bank of England governor Andrew Bailey has said on numerous occasions that any decision by the EU to not extend clearing access for the UK would be a serious problem for financial stability.
Earlier this week, he said: “If [the EU] want to take a decision to break the system up, then it’s important to consider the risks to financial stability that come with fragmentation.”
The EU declined to comment.