Before the Brexit talks have even begun, Brussels is preparing for life with the City of London outside the EU. The European Commission on Tuesday revealed what it plans to do about London’s lucrative euro clearing market — the envy of financial centres on the continent. It is a critical part of London’s financial services sector and the volume of business can exceed a notional $900bn a day. It centres on the processing of euro-denominated derivatives contracts by clearing houses such as the London Stock Exchange’s LCH. Brussels’ proposal is that EU regulators should be given powers to vet overseas clearing houses. Those deemed to pose a “systemic risk” to Europe’s financial stability will face a range of requirements if they want to maintain smooth access to the EU market. In extreme cases, they could be told to relocate to Europe if they want to retain regulatory approvals that help them do business.
What is Brussels worried about?
The problem is simple. Current rules would leave the EU with little say over how clearing houses in the UK are policed once Britain leaves the single market. This is an acute concern because the operations or failure of a UK-based clearing house could have huge ramifications for the EU.
What does the EU want to do?
The EU will propose giving the European Securities and Markets Authority, an EU agency based in Paris, powers to assess the systemic risks posed by overseas clearing houses.
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