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EU takes new step on derivative clearing, despite UK, U.S. concerns

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By Reuters
EU takes new step on derivative clearing, despite UK, U.S. concerns
FILE PHOTO: European Union flags are seen outside the EU Commission headquarters in Brussels, Belgium November 14, 2018. REUTERS/Francois Lenoir/File Photo   -   Copyright  FRANCOIS LENOIR(Reuters)

BRUSSELS (Reuters) – European Union governments backed on Monday a proposal that could force systemic foreign clearing houses with operations in the EU to relocate to the bloc if they want to continue servicing their EU clients, a statement said.

The move, which confirms a proposal made by the European Commission last year, could have repercussions for U.S. businesses and British clearing firms after Britain leaves the EU in March.

The text, if adopted in talks with EU lawmakers which will follow in the coming weeks, could concern LCH, a unit of the London Stock Exchange <LSE.L>, which dominates clearing of euro-denominated interest rate swaps and after Brexit will be outside the EU. The move could strip London of a chunk of that business.

If, “as a measure of last resort and on the basis of a fully reasoned assessment”, the European Securities and Markets Authority (ESMA) decided that a foreign clearing house is of systemic importance for the bloc’s financial stability, it could force that firm “to establish itself in the EU in order to be able to operate,” the EU document said.

Even when relocation is not necessary, the draft rules would increase EU supervision of foreign clearers with activities in the bloc, a move that has been openly criticised by the U.S. financial regulator.

Christopher Giancarlo, chair of the U.S. Commodity Futures Trading Commission (CFTC), warned of possible retaliatory measures if EU regulators insisted on close supervision of U.S.-based clearing houses.

Large U.S. clearers such as CME and ICE could be concerned by the new rules.

(Reporting by Francesco Guarascio, Editing by Gabriela Baczynska and Ed Osmond)