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30 October 2018

Financial Times: EU pledges access to UK clearing houses in no-deal Brexit

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Brussels has responded to financial industry calls for continued access to London’s capital markets by providing reassurance that EU groups will temporarily be able to use crucial derivatives clearing services in the UK even after a no-deal Brexit.

The commitment by Valdis Dombrovskis, European Commission vice-president, follows months of warnings by European bankers that EU companies otherwise face hefty rises in trading costs — or will be unable to hedge their market exposures.

Brussels’ offer shows the importance regulators attach to avoiding any disruption to the operation of clearing houses, which have become a vital pillar of the financial system in the wake of the 2008 crisis.

Mr Dombrovskis, who is responsible for financial regulation, told the Financial Times that the relief, which would allow EU banks and companies to continue using UK-based clearing houses to process derivatives trades if Brexit negotiations fail, would be strictly short term.

It would also be linked to the UK’s willingness to stick close to EU regulatory and supervisory standards.

“Should we need to act, we would only do so to the extent necessary to address financial stability risks arising from an exit without a deal, under strict conditionality and with limited duration,” he said. [...]

Mr Dombrovskis added that any temporary solution would be based on EU market access rules, known as “equivalence” standards, which could be used to grant short-term approvals of UK-based clearinghouses.

The EU has “all necessary tools to act quickly in order to ensure no disruption in central clearing” of derivatives, he said. “The time remaining until March 30 2019 is sufficient in this respect.”

An EU official said Brussels had not defined how long it might provide such relief, which would depend on developments on the ground. By contrast, the Bank of England has indicated it will grant temporary licences for up to three years allowing UK financial firms to access EU-headquartered clearing houses in the event of a no-deal Brexit.

Mr Dombrovskis said the EU decision reflected the findings of a joint working group of Bank of England and European Central Bank officials set up this year to assess what risks a no-deal Brexit would pose to financial stability. [...]

Full article on Financial Times (subscription required)

Related article on Bloomberg: EU Vows No-Deal Brexit Won't Block Banks From London Clearing

The Brussels-based commission would only ensure clearing access on a temporary basis to “address financial stability risks arising from an exit without a deal,” commission spokesman Johannes Bahrke said by email on Tuesday. Any short-term fix would be based on the EU’s so-called equivalence rules, which can allow firms outside the bloc to provide services to the single market, he said.

Banks welcomed the commission’s commitment to maintain the cross-Channel clearing link. But acknowledging the potential threat isn’t enough, according to Simon Lewis, head of the Association for Financial Markets in Europe, a trade group whose members include BNP Paribas SA and Deutsche Bank AG.

“It is now important to provide clarity to market participants on the timing and details of the approach that would be taken,” Lewis said. [...]

Full article on Bloomberg

© Financial Times

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