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Relief for City as EU extends bank access to London clearing houses

Lucy Burton
City
City

The European Union is to tell its banks that they can continue to access UK clearing houses until mid-2022, allaying fears in the City that London could be suddenly shut out of the lucrative market.

Clearing houses - which process financial products worth hundreds of billions of pounds every day, acting as middlemen between buyers and sellers for financial assets - has been a key area of debate since the EU referendum. Politicians on the continent had argued that EU derivatives should be cleared in the EU rather than London after Brexit. 

Clearing plays a crucial role for London as a financial centre, with the London Stock Exchange's LCH dominating the continent’s €735 trillion (£658 trillion) annual market. 

There were fears that EU banks would lose access to the clearing houses in January, threatening London's dominant position, but leaked proposals from the European Commission shows that the relationship can continue for another 18 months. 

According to the Financial Times the proposals argue that EU financial institutions must spend the extra time reducing their exposure to UK market infrastructures, with Brussels calling for the “the scaling down of the reliance” on the UK. 

The plans have emerged months after European Commission vice-president Valdis Dombrovskis said the bloc will introduce “time limited” provisions from January next year to ensure firms are still able to access the capital's clearing houses, an announcement welcomed by the City which has long campaigned for existing trading arrangements to be preserved after Brexit. 

Michael McKee, a partner at law firm DLA Piper, said extending the arrangements to 2022 is a "recognition of the importance of clearing for the EU’s real economy. Politicians have had to accept that if this extension is not given it will disrupt normal everyday business for corporate treasurers within the EU" while the US-based Futures Industry Association tweeted that the move was "good news". 

Earlier this week a source told Reuters that the European Commission was considering delaying making any announcement on the subject due to Britain’s plan to breach part of the Brexit divorce settlement. 

The UK only emerged from a four-year legal battle with the European Central Bank over clearing trades in the eurozone in 2015, but Brexit gave politicians including former French president Francois Hollande reasons to restart the debate. 

The European Commission declined to comment.