The European Union is proposing to prolong a temporary waiver for European banks and fund managers to use UK clearing houses until June 2025.
Speaking at an ECOFIN meeting today, EU commissioner for financial services, Mairead McGuinness, said “We envisage proposing an extension of the equivalence decision to three years until the end of June 2025,”
She added that the move would avoid “any short-term cliff-edge effects.”
McGuinness also said a public consultation would be launched “on measures to make the EU an attractive clearing hub and on the supervisory arrangements,” for EU clearing houses.
She noted, This public co
nsultation will feed into a strategy on clearing to reduce in medium term our overreliance on the UK.’s financial markets infrastructure.”
The extension was mooted last November to prevent market disruption. At the time though, McGuinness, said the bloc’s reliance on London’s clearing infrastructure isn’t feasible in the medium term.
Shifting euro denominated clearing from London to the bloc has been a longstanding goal of the EU. However, market participants have not budged post Brexit due to the significant costs of transferring positions.
Late last year, the European Securities and Markets Authority said the EU should take steps to reduce its dependence on two major London-based clearinghouses – given their their dominant market share, resulting in a level of dependency on their services.
ESMA said it had identified “important risks and vulnerabilities” from certain services at LCH which last year alone cleared some $1.1 quadrillion of swaps — and ICE Clear Europe., especially during times of market turmoil.
Industry participants welcomed the extension. As Kirston Winters, head of legal, risk, compliance and government and regulatory affairs at OSTTRA, put it, “Given the forthcoming expiry of the current temporary equivalence decision, this is a pragmatic and timely step to avoid market disruption due to short-term cliff-edge effects, ensuring market stability.”
He adds, “The current open model of OTC derivatives clearing, driven by customer choice and supported by strong clearing ties helps promote global financing driving economic growth and prosperity.”
Javier Hernani, Head SIX Securities Services, says, “Any decision that provides stability and security around European clearing is welcome. Ultimately, every market participant has the same goal of reducing costs and risks and, crucially, increasing capital efficiencies around the posting of collateral.”
©Markets Media Europe 2021
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