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The draft EU law proposes that a foreign clearing house – which stands between two sides of a transaction to ensure its smooth completion – must be subject to more intense supervision by the bloc’s regulators if it wants to serve customers in the EU.
But if a clearing house is systemically important to the euro zone, then euro-denominated business with EU-based customers must move to the bloc. [...]
In the first debate in the European Parliament on Tuesday, lawmakers from the two biggest parties, the centre-right European People’s Party (EPP group) and the centre-left Progressive Alliance of Socialists and Democrats (S&D group), gave broad backing to the draft law, but called for some changes.
“It’s a good proposal from the European Commission,” Polish centre-right MEP Danuta Huebner told parliament’s economic affairs committee.
“In principle, I support the proposal, which I find necessary,” added Roberto Gualtieri, an Italian S&D group lawmaker who chairs the committee.
The European Parliament and EU states have final say on the reform, with changes expected during the approval process.
No timetable has been agreed for approving the law and, separately, there has been scant agreement on any new relationship between the EU and Britain.
That means LCH’s European customers don’t know at the moment if they can continue using the London clearer after Brexit. [...]
Brexit protectionism
Huebner said parts of the draft law were too complex, creating uncertainty over how exactly EU regulators and the European Central Bank would decide when euro clearing conducted outside the bloc must move to the EU.
“We have to do everything to avoid potential inconsistency in decision-making,” Huebner said. “We must not politicise the whole process.”
Gualtieri said there was a need to “upgrade” EU supervision of clearing, but lawmakers should be “very cautious, reflective and in a listening mood” given the potential consequences.
Others said there was a need to avoid protectionism or using clearing as a stick to beat Britain given that the UK was already “fighting with itself”.
British MEP Kay Swinburne, a lone voice in outright opposition, said a regional restriction on a global currency is the wrong approach.
“There is a reason why we have done so much work at the global level, and I really hope that we are not going to throw all of that away to have some protectionism with regards to a Brexit decision,” Swinburne added. [...]