Andrew Bailey calls for indefinite waiver of EU lenders’ access to London clearing

The EU should allow its banks and fund managers to use UK clearing houses indefinitely, Bank of England Governor Andrew Bailey said on Thursday, just weeks after the EU proposed a three-year extension. years of temporary authorizations.

EU banks and fund managers have long used UK clearing houses, but post-Brexit Brussels has been reluctant to rely on a non-EU country for the critical infrastructure that acts as a middleman for prevent trade defaults from triggering a domino effect in the markets.

The EU initially set a June 2022 deadline for its banks and fund managers to wean themselves off London clearinghouses, but last month proposed a three-year extension to the “equivalence” regime allowing EU financial services firms to clear their transactions through the UK. .

However, Bailey says dinner for lobby group The City UK that “there is no time limit to this equivalence”. He underlined the “deep shared commitment of the UK and the EU to open markets and open financial systems with strong and appropriate regulatory standards and cooperation”, meaning that the UK regime could be equivalent to that of the EU indefinitely.

The European Commission did not immediately respond to a request for comment.

“Pushing for permanence is a smart step,” said Simon Morris, financial services partner at law firm CMS. “[The] The EU remains reluctantly dependent on the city, eclipsed only by its fear that key infrastructure is under its control. If the Bank of England continues to show its credentials as a powerful regulator, there is every chance of an extension.

Last month, Mairead McGuinness, the EU’s financial services commissioner, said Brussels would start consulting member states on extending equivalence until 2025 to avoid “short-term cliff-edge effects” that could be triggered by the initial delay.

Despite the commission’s ambition to integrate clearinghouse activity within the bloc, its banks and fund managers have been slow to transfer their activities to EU clearinghouses, which are much more smaller than those in London.

Moving European clearing to the EU would effectively split the trading books in half, which is less efficient. Some companies also claim that European clearinghouses do not have the same wide range of products available in London, and claim that mainland service levels and technology are lower.

European securities regulator Esma backed the position of banks and fund managers, ruling in December that the risks of moving business to the continent outweighed the benefits, as clearinghouses London LCH and ICE Clear Europe were of “substantial systemic importance” to the EU.

McGuinness has promised a public consultation on how to make EU clearing infrastructure more attractive, which the commission hopes will draw European banks and fund managers away from London-based providers like LCH. The house still acts as an intermediary for 90% of the denominated derivatives market, handling transactions valued at 91 billion euros, according to data provider Osttra.

Bailey said the BoE “will continue to work closely with EU authorities to ensure that risks in clearinghouses are well managed, as we do with other authorities in other countries. “.

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