12 December 2019

Financial Times: EU confirms one-year Brexit reprieve for clearing houses

The EU has confirmed it will grant the derivatives industry more time to prepare for a potential no-deal Brexit, saying that emergency access to crucial UK market infrastructure would last for one year after Britain drops out of the bloc.

National officials have approved draft plans from the European Commission to scrap an existing March 2020 expiry date for the measures, arguing that the sudden loss of access for European companies to UK clearing houses would pose a threat to financial stability.

Instead, the access rights would now apply for 12 months from the day a no-deal Brexit happens, whenever that may be. EU diplomats said the measures will be signed off by Brussels in the coming days, providing much needed certainty to industry.

The reprieve is significant for Europe’s financial services industry as London is a global hub for clearing derivatives like futures and swaps. The notional value of the EU derivatives market rose 11 per cent to €735tn in 2018, according to data from EU regulators this week.

UK clearing houses LCH, ICE Clear Europe and LME Clear are core parts of the infrastructure of the financial system, standing in the middle of financial trades and cushioning the impact if a counterparty defaults. They handle the vast majority of euro-denominated interest rate and credit swaps, and commodity futures.

The emergency contingency measures are needed as EU regulations ban European companies from using non-EU clearing houses unless they have been judged by Brussels as being properly regulated and supervised.

A draft of the new plans, published on the commission’s website, warns that potential risks to financial stability are “likely to persist after 30 March 2020”. The sector needs “legal certainty and predictability for a sufficient period of time following a potential withdrawal”, the document says.

Full article on Financial Times (subscription required)

European Commission reprieve

© Financial Times