Clear as mud: EU hints at extension to City’s equivalence deal for euro-clearing
The EU’s head of financial services yesterday hinted at a possible extension to the post-Brexit carry-over deal which allows banks from the bloc to access clearing houses in the City.
Mairead McGuinness told the Financial Times that Brussels was minded to avoid a “cliff edge” situation and avoid market instability.
“We have to make sure that there is no instability in the short-term, but we also have to look at our long-term interests,” she told the newspaper.
McGuinness said yesterday the bloc wanted to give suitable notice on changes to rules and avoid “any sudden twists and turns,” but a decision on the next step could come within weeks.
A current ‘temporary equivalence’ deal between the UK and EU means Square Mile exchanges such as the London Metal Exchange and clearing houses run by the London Stock Exchange and ICE can work on euro-denominated deals.
Financial services was largely put in the ‘too-hard’ basket by Brexit negotiators who negotiated about factories and fishing rights instead.
However, a carry over deal where the same rules pre-Brexit times apply to the €80 trillion euro clearing market – still largely handled by London’s LCH – is due to run out by 31 June 2022.
Industry officials expect the EU cave to banking industry pressure and grant the City a temporary extension, but with high volume interest rate and credit default swaps in euros excluded – meaning clearing would have to move to the bloc, perhaps over a “transition” period.
“That is what I expect to happen and I believe the European Commission is working on that now,” a senior EU banking official told Reuters on Friday.
That would chime with a warning McGuinness gave EU firms yesterday to shift more euro-denominated derivatives business back to the bloc to help avoid that cliff edge.