Brussels seeks to control post Brexit euro clearing
13 Jun 2017
Firms that cleared euro-denominated derivatives might be forced to relocate to the EU from London after Brexit, under EU proposals that will be rolled out today.
Under the EC's plans for overhauling supervision of clearing houses based outside the bloc, firms deemed systemically important to the EU financial system could be required to accept direct oversight by the bloc's authorities, it was understood.
Firms could also be forced to move their euro clearing operations to a location inside the EU, Luxembourg-based daily Luxeberg Wort reported citing a source.
This location requirement as it was called had led to warnings from the industry of high costs, and had helped to turn clearing a political game as the EU and UK prepared for divorce negotiations.
In a letter dated 8 June to Valdis Dombrovskis, the EU's financial-services policy chief, the International Swaps and Derivatives Association said a survey of data from 11 banks showed that requiring euro-denominated interest-rate derivatives to be cleared by an EU-based clearing house would boost initial margin up to 20 per cent.
The proposals that will be published today were mostly in line with initial plans floated last month by the commission, the EU's executive arm. Which clearinghouses were significant enough to be directly supervised would be determined by the EU, according to the source.
The UK had guarded its dominance of the clearing house sector in Europe and in 2015 had won a court decision against the European Central Bank for continuing hosting the euro deals.
As the lobbying heated up, the EU last month said it was exploring several options on the issue including the possibility that the UK maintain euro-clearing, while accepting strict Brussels oversight.
The London Stock Exchange had objected to relocation in a sign that forced move out of the UK could greatly damage its business.
"It's going to be complete chaos. This has not been properly thought through," LSE chief executive Xavier Rolet told the Sunday Telegraph.