Brussels extends deal over clearing market
BRUSSELS is planning to extend a crucial agreement that protects the multi-trillion euro market in clearing services between London and the European Union after Brexit.
The City dominates the €660 trillion (£565 trillion) market, in which clearing houses guard against defaults that could build up and have systemic consequences in the derivatives markets.
Last year, the European Commission issued a temporary equivalence decision until March 30 2020, which would have allowed existing EU arrangements on central clearing services to continue to apply to the UK post Brexit.
Speaking at the Guildhall in London yesterday, Valdis Dombrovskis, European Commission vice-president said: “Regrettably, the risk to financial stability has not yet been fully removed, because industry has not so far fully prepared.
“Therefore, I intend to propose to renew this time-limited equivalence decision beyond that date, to prepare for any eventuality.”
Mr Dombrovskis did not specify the length of the intended extension.
His comments were welcomed by Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), who said: “This is an important issue with real consequences if not resolved.”
Mr Bailey called in September for Brussels to grant counterparty clearing houses permanent recognition to avoid rising costs and a possible strain on market capacity.
The British Government has already decided to allow UK businesses to use Eu-based clearing houses for three years from the date of Brexit.
In his speech, Mr Dombrovskis said central clearing had been identified as a clear systemic risk in the event of a no-deal Brexit.
“When it comes to considering ‘knowns’ and ‘unknowns’: up to a point we can prepare. But as ever, we have to be ready for the unexpected, and its impact.
“There is still uncertainty about
Brexit, ” he said.
The International Swaps and Derivatives Association (Isda) welcomed Mr Dombrovskis’ proposal.
Roger Cogan, head of European public policy at Isda, said: “Timely adoption of this equivalence decision will remove a great deal of uncertainty over whether EU clearing members would have been able to continue clearing at UK CCPS [central counterparties]. This would likely have led to very significant market disruption.”