By Huw Jones
LONDON -There will be no access to the European Union for Britain’s derivatives clearing houses after June 2025, the bloc’s financial services chief Mairead McGuinness said on Friday.
Britain’s departure from the EU has largely severed the country’s financial services ties with the bloc.
But clearing in London of euro-denominated derivatives for banks and asset managers in the EU was allowed to continue because of the risk of market disruption if the huge volumes involved had to be moved in a short time.
The London Stock Exchange’s LCH business holds 92 trillion euros in euro interest rate swaps positions, compared with 11.4 trillion euros at Deutsche Boerse in Frankfurt.
Brussels on Tuesday extended “equivalence”, meaning UK clearing access, until June 2025 for a final time to reduce heavy “over-reliance” on clearers in London.
Bank of England Governor Andrew Bailey said on Thursday that Brussels should not have set a time limit on clearing access, and that seeking to fragment the international financial market cannot be justified.
McGuinness said the EU had an open financial market and wanted to build up its own capital market.
“I am very clear that June 2025 is the end of equivalence for UK clearing houses,” McGuinness told a Politico event.
Shares in London Stock Exchange Group were down 3.5%, compared with a 0.7% drop in the FTSE 100 blue chip index.
She has launched a public consultation on “incentives” to shift clearing from London to the EU in an industry that has so far resisted pressure to do so.
“It will not happen organically, which is why we will need to intervene,” McGuinness said.
An exchange official said only about 25% of euro clearing at LCH is between EU counterparties, meaning coming under Brussels’ regulatory purview.
The Brexit trade agreement between Britain and the EU includes a “memorandum of understanding” to set up a forum for financial regulators to hold regular discussions, a step banks hoped would open the door to EU market access later on.
The EU has yet to approve the new forum and McGuinness said
the forum would not be launched until issues over the Northern Ireland Protocol, which Britain is refusing to adhere to in full, are resolved.
“Our hope would be we could see the finalisation of these problems that need to be solved, and that then we could move forward,” McGuinness.