Brussels clearing plot to lure City business

BRUSSELS is launching a fresh raid on the City’s lucrative clearing houses as it attempts to force banks to shift business to the European Union.

The European Commission has unveiled legislation to give the EU a share of London’s derivatives trading, which handles trillions of euros a year.

Commissioners insisted that the move was not a power grab, saying that the new rules were needed to protect Europe from the risk to financial stability posed by the large amounts of derivatives cleared in London. Valdis Dombrovskis, the commission’s executive vice-president, said: “We need to reduce our excessive exposure to non EU clearing houses because it poses significant risks to our market stability.”

It comes as Rishi Sunak prepares to water down City regulatory reforms and abandon the use of the term “Big Bang 2.0”.

Jeremy Hunt, the Chancellor, and Andrew Griffith, the City minister, are expected to unveil a muted package of reforms tomorrow at a meeting with finance executives in Edinburgh.

European plans to onshore a larger proportion of derivatives clearing would bring it under the remit of EU regulators, which lost their control over London after Brexit. Clearing houses have become increasingly important since the financial crisis. They sit in the middle of derivatives traders and ensure that sellers get paid even if a buyer goes bust.

Under the bill, European traders will be required to have accounts with continental houses for clearing a portion of derivative contracts that are deemed particularly risky by EU financial supervisors. Banks will be encouraged to handle more transactions through an EU clearer or face capital charges.

Mr Dombrovskis said: “In the event of a crisis, we must be able to have continuous and immediate oversight.”