The Square Mile’s local authority has called on Brussels to extend the EU’s access to City clearing houses beyond next year to ensure financial stability.
The City of London Corporation’s policy chair Catherine McGuinness said in Paris today that “the issue of clearing is a real worry for many of us in the City”.
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.
“If the current time-limited equivalence decision is allowed to lapse at the end of June 2022, there is a significant risk of market disruption for EU clearing members and their clients,” McGuinness said.
“That would hurt both the UK and many countries in Europe, just as Covid recovery gathers pace.
“It’s therefore imperative that we find a way forward together to solve this issue, and I am hopeful we can.”
Last month, a collection of EU financial services bodies also called for ongoing access for the UK’s clearing houses.
The International Swaps and Derivatives Association, the Association for Financial Markets in Europe and the European Banking Federation said if an extension was not granted by March next year that there would be “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.
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 seriously jeopardise financial stability throughout Europe.