Brussels will allow US clearing houses operate throughout the EU in what could be a blow to the City of London’s largest clearing agencies.
The European Commission announced today that it had decided that the US’ financial regulator’s rules was equivalent to the EU’s around clearing houses.
This means the EU will now allow Wall Street clearing houses to operate throughout the bloc.
This will likely be seen as a way to replace the Square Mile’s iron grip in this space, with City of London clearing houses only allowed to operate in the EU until June next year.
Mairead McGuinness, EU commissioner for financial services, financial stability and the capital markets, said: “This decision is a significant first step in the process of recognising US central counterparties registered with the US Securities and Exchange Commission in the European Union.
“We look forward to continued good cooperation between EU institutions and agencies, and the US Securities and Exchange Commission.”
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.
London’s clearing houses have dominated in the EU, with LCH overseeing the bulk of over the counter trading.
The EU has allowed the UK’s clearing houses to continue operating in the EU past the end of the Brexit transition date on 31 December, however this access is due to end in June 2022 without a further extension.
The move to allow American competitors to operate in the EU will be seen as a move by Brussels to clear the way to locking out the UK’s clearing houses next year.
However, Bruno Fatier, financial services solicitor at Keystone Law, argued “the move made by the European Commission is not to punish London for exiting the EU, but forms part of an older and longer need for smoothing clearing across the Atlantic”.
“As far as London is concerned, the biggest threat ahead is the loss of the right to clear transactions denominated in euros, and whether the opportunity of opening up to the Asian markets will outweigh that loss is a challenging question.
“However, the EU has not yet put itself in a situation where London can be replaced overnight.
“The timing of the loss will depend on how hard private players, especially in Germany, less so in France in my view, are working behind the scene to build a platform capable of replacing London as the epicentre of clearing in Europe and for the euro.”