Brussels backs down over London clearing houses in win for the City
Brussels will allow firms on the Continent to continue using London's vital clearing services after the Brexit transition ends in a victory for the City.
European Commission vice-president Valdis Dombrovskis said the bloc will introduce “time limited” provisions from January next year to ensure firms are still able to access the capital's clearing houses, middlemen which handle trillions of pounds of trades each year and are a crucial part of the global financial system.
Brussels did not confirm how long the arrangement will last. It will kick in if the UK and the European Union fail to reach a Brexit deal.
The decision is likely to be seen as a climbdown by EU chiefs, who have long resented Britain's dominance in clearing.
A power grab was launched shortly after the Brexit vote to try and force Continental firms to clear trades through hubs within the bloc, but this stalled when it became clear no other financial centre could handle the volume of activity done in the City.
Clearing houses such as LCH, ICE Clear Europe and LME Clear perform a vital role in greasing the wheels of international finance, standing between buyers and sellers to settle trades and ensure sellers get paid.
Access to London’s clearing houses for financial contracts such as swaps and futures is a key issue for European firms because the UK dominates the continent’s €735 trillion (£658 trillion) annual market. It was feared they could be denied access to crucial finance and face serious stability risks if frozen out.
The announcement was welcomed by the City, where firms have long campaigned for existing trading arrangements to be preserved after Brexit.
Oliver Moullin, managing director at the Association for Financial Markets in Europe, said the move to protect access to clearing was essential to address a very important financial stability risk.
The EU’s decision to guarantee firms access to London clearing houses will not necessarily be replicated in other financial services industries, where ties could still be cut from 2021 without a deal.
Michael McKee, a partner at City law firm DLA Piper, said: “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.”
