The European Union is set to tell banks they can continue accessing London’s vital financial infrastructure for 18 more months in an effort to avoid instability when the Brexit transition period finishes at the end of this year.
The bloc’s Commission has proposed that lenders’ access to London clearing houses should stay as it is until the middle of 2022, according to the Financial Times, which cited two sources.
Clearing is the procedure by which financial deals are settled. It is vital to ensuring the correct payments reach the right parties, even if a counterparty goes bust.
London completely dominates the European clearing business, with most trades in interest rate, commodity and credit derivatives coming through systems in the capital.
Ice’s London-based Clear Europe and the London Stock Exchange’s clearing business LCH are crucial to the European financial system.
Some financial sectors such as Frankfurt saw Brexit as a chance to make inroads into the clearing market. But the planned extension of London clearing access from the EU is a sign that the bloc is wary of disrupting its relationship with the City.
Under the plans, access would expire at the end of June 2022, the FT reported. The EU is expected to make a formal decision at the end of this month. The European Commission declined to comment.
It comes with the relationship between the EU and UK at one its lowest points since the referendum.
Yesterday, the House of Commons voted through the first reading of the internal markets bill, which would override parts of the Brexit deal struck between the two sides in the autumn.
Last week, the City of London corporation said the UK government’s move could “seriously damage” the UK’s relationship with its biggest trading partner.
The Corporation’s policy chair Catherine McGuinness also said the government appeared to have forgotten about the financial services sector during Brexit talks.