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11 December 2021

POLITICO: EU’s new markets boss weighs risks of euro clearing decision

The EU’s securities regulator is on the cusp of wading into a major Brexit debate over the future of euro clearing.

The European Securities and Markets Authority will offer this week its verdict on whether top U.K. clearinghouses are so important to the EU’s financial system that they should no longer be recognized to provide services from outside its borders, according to its new chief Verena Ross, forcing them to move their services into the bloc.

The decision will have major political implications for the EU as it tries to shift euro clearing out of the U.K. after Brexit, as well as for the City of London’s future.

Ross, who took the helm of ESMA in November following a protracted appointment process, spoke to POLITICO last week in her first media interview since taking on the job.

The German regulator, who previously held the No. 2 post of executive director at ESMA for ten years, said the authority is weighing how important the two largest London clearinghouses — LCH and ICE Clear — are for the EU’s financial system.

“CCPs [have significant importance] for the EU financial markets. And that is a financial stability issue that needs to be carefully considered,” Ross said. “But at the same time, it needs to be carefully considered what the consequences could be if you stopped at this point in time the recognition as it currently exists.”

While Ross didn't tip her hand on which way ESMA’s assessment will go, she struck a softer tone than Brussels policymakers by emphasizing the risks that may stem from cutting off access to London’s powerhouses.

Her comments come after a chorus of warnings about the potential fallout. The Centre for European Policy Studies, for example, has argued that sudden restrictions would put EU banks at a competitive disadvantage and damage the bloc’s economy. The derivatives industry has also sounded the alarm.

“In the end, if you decide not to withdraw recognition, the important thing will be what can you do to potentially mitigate the risks to the financial stability of the EU," Ross said. "Those are the type of considerations we will be talking about."

Brussels, for its part, will be watching closely. The European Commission has staked political capital on luring euro clearing out of London, to the ire of U.K. policymakers...



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