Brussels proposes extending EU banks’ access to UK clearing houses

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Brussels has proposed extending EU banks’ access to UK derivatives clearing houses for another three years in a win for the City of London.

The European Commission announced on Wednesday that it has introduced a new so-called “equivalence decision”, which will allow the bloc’s banks and other financial institutions to use the world’s most important market utilities in London until June 2028.

EU politicians have tried to capture the gains Euro-denominated clearing industry But since the Brexit vote in 2016, its financial system still depends on the UK, which dominates the global business of clearing derivatives.

clearing Houses reduce market risk by standing between two parties to a trade.

London often handles around $3.5 trillion worth of deals per day. It is a global center for the trading of interest rate derivatives and Brent crude oil, including clearing transactions on LCH and Intercontinental Exchanges of the London Stock Exchange Group.

European derivatives traders lobbied hard to extend the City’s permit, which expires on June 30 after three years. Member states have five days until June 2028 to object to the commission’s proposal, but such opposition was rare, officials said.

The commission said UK-based clearing houses were key to plans to build a single market in savings and investments.

“Two [clearing houses in the] The UK has been identified by the European Securities and Markets Authority as systemically important to the EU’s financial stability,” said financial services spokesman Olof Gill, referring to LCH and ICE.

“We therefore need an extension of the equivalence decision to avoid any risk to our financial stability in the short term and to give certainty and clarity to EU financial market participants,” he added.

But he added that Brussels is committed to building a competitive industry. Last year it approved an updated European market infrastructure regulation that will oblige EU banks to keep “active accounts” in EU-based clearing houses for some products, and users in others if they cross a minimum threshold.

The regulation “includes measures that will improve the attractiveness and competitiveness of the EU clearing market. It will help reduce the EU’s over-reliance on UK clearing houses in the medium term,” Gill said.

Pascal Kernis of the European Services Forum, which represents business services firms internationally, welcomed the move.

“This will give operators a clear view of the EU financial markets in the medium term.

“It would also give a good political signal for a proper ‘reset’ of EU-UK relations,” he said.

Both sides have started talks to improve trade relations. UK Chancellor Rachel Reeves met her EU counterparts in December and called on them to remove barriers to City firms. He said they could boost EU growth through international investment in the bloc.

Clearing is the only sector of financial services that has been given parity since Brexit.