Brussels has moved to ensure EU member states retain access to the City’s clearing houses after the end of the post-Brexit transition period on 31 December.
The EU will allow its members to have access to the UK’s clearing houses, some of the largest in the world, on a “time limited” basis, according to European Commission executive vice president for financial policy Valdis Dombrovskis.
Dombrovskis did not give any details on how long this access would last, but warned that the EU’s financial services sectors should be prepared for this to change.
“This decision is being taken to address the possible risks to financial stability related to the specific area of derivatives clearing,” he said.
“However, we would encourage all market participants to prepare for all possible eventualities, as we have consistently called on them to do throughout this process.”
London’s clearing houses are world leaders in facilitating derivatives trading.
Clearing houses such as LCH, ICE Clear Europe and LME Clear are vital for the EU financial services firms, who would struggle to find suitable European alternatives.
Michael McKee, partner at London-based law firm DLA Piper, said: “This is a very positive development and important for financial stability against the backdrop of the pandemic.
“However, it is important to recognise that derivatives clearing is one of the few financial services areas where the EU considers such certainty to be important for EU located businesses, so it is not necessarily an indicator that agreement can be found on other financial services issues.”
It comes as it was revealed yesterday that Barnier had told a House of Lords committee that the EU was “ready to grant” the City of London access to EU markets after the transition period.
The EU has the power to unilaterally grant access to financial services firms based on whether UK regulations are similar to their own – known as equivalence.
Brussels has said on numerous occasions that the process is separate from ongoing post-Brexit trade talks, however it has been suggested that the EU could withhold access to its markets in order to draw out concessions from the UK in negotiations.
Barnier’s comments will assuage fears that the City could face a cut off from Europe after the post-Brexit transition period ends on 31 December.
The UK government is also working on equivalence assessments to decide whether financial services firms based in the EU will retain access the other way.
Downing Street has indicated that there should not be a problem granting equivalence as the two sides are starting from a very similar starting point.