EU remains firm on post-Brexit clearing plans despite pressure on both sides of the Channel
The EU is set to reject calls to rethink its approach to the clearing business despite mounting pressure on both sides of the Channel.
The EU’s financial services commissioner Mairead McGuinness said the plans were vital to the EU’s “financial resilience”.
“I want to underline that this matter is actually not so much about Brexit. The EU needs, for its own sake, safe, robust and attractive clearing for a well-functioning [capital markets union],” McGuinness told the Financial Times,
The comments come after two days of meetings in London between McGuinness and senior figures in the UK, including the Chancellor, Bank of England and the City of London corporation.
McGuinness has also faced pressure from some of the largest financial institutions in the EU who worry that the EU’s plans could impose unnecessary costs on them.
Through a combination of coercion and encouragement, the EU is hoping to build a larger domestic clearing market in the bloc, arguing it is essential to the bloc’s financial stability.
Clearing is a crucial part of financial plumbing that helps firms manage the risks that might arise if one counterparty defaults on a deal
The issue has become one of the most prominent sources of tension between the UK and EU because the vast majority of euro-denominated swaps take place in London.
Even after Brexit, around 94 per cent of Euro denominated swaps take place at London Clearing House (LCH), according to figures from Clarus.
Initially, the EU said it would grant equivalence status to London-based clearing houses until June 2022, meaning they could continue to operate in the bloc exactly as they could pre-Brexit.
This deadline was then pushed back to June 2025. Firms warn that if the EU does not extend its deadline, there could be a “cliff-edge”.