EU sticks to post-Brexit trade deadline despite objections

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Brussels has rejected industry calls to rethink its plan to snap up lucrative clearing business from the City of London, saying it must move forward to ensure robust markets in Europe.

Mairead McGuinness, the financial services commissioner, defended the EU’s strategy to build euro clearing, saying the proposal was vital to the bloc’s “financial resilience”.

The commission faces assembly pressure by major derivatives firms to rethink EU plans to wring euro clearing out of London. McGuinness spoke to the Financial Times after two days of meetings in London, where she held talks with counterparts to strengthen collaboration in other areas of financial services.

Clearing houses reduce market risk by placing themselves between two parties to a trade. They have been a major battleground since Brexit, as the EU seeks to build its capital markets infrastructure and improve its regulators’ oversight of the vast euro-denominated derivatives market.

Clearing is the only area where the EU has granted London temporary “equivalence” after Brexit, allowing the City’s clearing house to continue handling more than €130 trillion in euro-denominated swap transactions. The EU plan sets 30 June 2025 as the cut-off date for its “equivalence” decision, but industry players warn that this poses a threat to financial stability.

The UK government privately believes that the commission will – inevitably – have to delay the deadline by several years. UK government officials said UK ministers expect the EU to further extend CCP equivalence ‘out of self-interest’, as allowing the current equivalence to lapse could create a ‘financial stability risk’ for the UK. continent.

A further extension of the deadline would not only benefit the EU after the Credit Suisse takeover and several US bank failures, but would also reflect improved relations between London and Brussels, they said.

But McGuinness said the EU date was aimed at ensuring the industry was not “slumping” and that it gave the EU time to get its house in order.

“I want to emphasize that this issue is actually not so much about Brexit. The EU itself needs a secure, solid and attractive compensation for it to function properly [capital markets union]McGuinness said.

Broader decisions on equivalence, he added, “will be based on what is in the best interests of the EU, our citizens and businesses and our financial system”.

McGuinness met key policy makers in London, including Bank of England Governor Andrew Bailey and Chancellor Jeremy Hunt, in his first official visit to the UK since the Windsor framework was agreed.

He hailed the improved atmosphere in the talks, saying relations have “much improved. Tensions have eased.” The two sides did not stop to clear the rooms in the meetings.

Brussels said last week it would sign a deal with the UK to boost cooperation in regulating financial services, a further sign of the improving mood. A new memorandum of understanding will provide a framework for cooperation in financial services, he said, allowing the EU to engage with the UK as it already does with the US and other financial powers.

A new body will meet to discuss common issues such as sustainable finance and financial crime, McGuinness said. He added that collaboration could also be deepened with UK authorities in cryptocurrencies and sustainable finance.

“Over time, much will depend on whether the EU and the UK move broadly in the same direction when it comes to regulation and oversight of the financial system.”