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EU rejects U.S. 'blackmail' to dilute derivatives clearing rules

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By Reuters

By Huw Jones

LONDON (Reuters) – The European Union rejected U.S. calls to water down new derivatives clearing rules on Thursday, saying EU lawmakers would not be “blackmailed” and it had every right to supervise foreign financial firms in the same way as U.S. regulators.

The U.S. Commodity Futures Trading Commission (CFTC) chair Christopher Giancarlo threatened retaliation on Wednesday unless the EU softened the draft rules, which set out tougher conditions for foreign clearing houses doing business in the bloc.

They include allowing EU regulators to directly supervise clearing houses on their home turf in some instances.

For two regulators to air their differences so publicly is rare.

Asked if the bloc would weaken the rules, EU financial services chief Valdis Dombrovskis said they were similar to how the United States supervises foreign financial firms that serve U.S. customers.

“Our system would become more similar to the U.S. system. It’s a balanced approach,” Dombrovskis said.

The EU was not calling into question its existing agreement with the United States on recognising each other’s derivatives clearing rules, he said.

Dombrovskis’ top civil servant, Olivier Guersent, told the Politico event that it was unfortunate that “my friend Mr Giancarlo is blackmailing legislators”.

When the United States threatened to cut off U.S. market access for EU financial firms, it would change nothing. “I don’t like it but that is their right,” Guersent said.

The EU rules were drawn up in response to Brexit, which will result in Europe’s biggest clearing house for euro-denominated transactions like interest rate swaps, London-based LCH <LSE.L>, being located outside the bloc.

Unless the Bank of England agrees to joint supervision of LCH, the clearer may have to shift euro-denominated operations to the EU or risk losing the business.

The draft rules have led to accusations of regulatory overreach in the United States, home to clearers like CME <CME.O> and ICE <ICE.N>.

Giancarlo said that unless the EU rules were watered down so that the bloc’s regulators “defer” to U.S. counterparts when it comes to supervising American clearing houses, the CFTC could effectively bar U.S. securities houses from trading on EU exchanges.

Latest figures from the EU’s securities watchdog ESMA on the bloc’s 660 trillion euro derivatives market, published on Thursday, highlighted London’s dominance in heavily traded products like interest rate swaps.

The European Commission said it offers greater deference to the CFTC than vice versa.

“The objective of the proposed new framework of CCP supervision is to …adapt our supervisory framework to the evolving circumstances in European derivatives markets,” a Commission spokesman said. 

“We look forward to continuing the dialogue on this matter.”

(Reporting by Huw Jones; Editing by Susan Fenton)