British-based clearing houses should not be forced to move to the European Union after Brexit, a senior European Parliament lawmaker has said in a sign of a softening of Brussels’ hardline stance over the institutions’ euro transactions.
The EU is mulling changes to its rules for clearing houses, the majority of which are in London, which could lead the biggest being forced to establish EU headquarters.
More than 90pc of the most important derivatives transactions in euros are cleared by British-based clearing houses, which, after Brexit, will be outside the EU.
On Wednesday, Danuta Hübner, the lead MEP on the draft law struck a more conciliatory tone, which reflects a growing recognition in Brussels that simply forcing clearing to move out of London would pose more problems than first thought.
The Bank of England and industry figures have warned that forced relocation would mean fragmenting markets in Europe, bumping up costs and potentially seeing the activity shift to New York.
As rapporteur on the legislation Mrs Hübner, a member of the largest and most influential political group in the European Parliament, will helm amendments to the draft law, which will ultimately have to be agreed with national governments.
Mrs Hübner’s European People’s Party said in a statement that it did not want to force clearing houses to relocate but did want EU regulators to have more power over non- EU clearing houses if they dealt in euros.
“If you want to do business in euros you have to accept that there will be a referee from the European Union, a real referee who has the power to send you off the pitch”, she said in reference to the European Securities and Markets Authority (ESMA).
“I don’t want this to be decided either arbitrarily or for political reasons”, she said but added: “Denying a non-EU clearing house recognition in the EU should be a credible option. It should remain in the legislative text as an insurance mechanism in case things go wrong and supervisory cooperation does not work.”
Brussels is anxious to prevent a bonfire of financial regulation in Britain after Brexit. It has begun the legislative process to beef up the powers and resources of ESMA and its other regulators in preparation for Britain becoming a non-EU country.
The draft bill proposed by the European Commission could allow Brussels to stop EU banks using non-EU clearing houses and calls on EU regulators to check on “systemic” foreign clearing houses that handle large amounts of euro-denominated assets like interest rate swaps.
If a clearing house’s home regulator, which would be the Bank of England, failed to cooperate with the EU supervisors, the bloc would demand that clearing for EU customers be relocated to the EU.
Britain is unlikely to have a say on the final shape of the legislation because it loses all EU voting rights during the transition period which should begin after the March 29 2019 Brexit deadline.
It is seen by Britain as an attack on the City of London where an arm of the London Stock Exchange clears the bulk of euro denominated assets.
Immediately after the Brexit vote in 2016, Francois Hollande, the French president, said that London should no longer be allowed to clear euro assets.
The European Parliament’s economic affairs committee voted on the draft law on Wednesday night.
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