Brussels extends compensation rights in post-Brexit boost for the City

Brussels has been forced to extend London’s lucrative euro clearing rights in a post-Brexit boost for the City as it seeks to protect its role as a global hub.

The European Commission has cleared the continent’s banks to continue accessing the UK’s € 660 trillion (£ 563 trillion) clearing market beyond an initial deadline of June 2022, fearing that their deletion does not harm financial stability.

He did not say how long the extension would last, but UK officials believe it will likely be unlimited.

The move is an important victory for British financial services and puts an end to short-term efforts by France and other rival countries to seize market control from London’s clearing houses, which act as intermediaries in transactions. on derivatives between banks and have become an essential part of the system since the banking crisis of 2008.

Michael McKee, partner at DLA Piper law firm, said: The European Union has finally accepted how vuital clearing services located in the UK are for the EU. “

It was feared that EU banks would lose access to UK clearing houses after Brexit, putting 232,000 jobs at risk.

However, last year the EU extended access until June 2022 following warnings of serious disruption if services were cut.

EU chief financial officer Mairead McGuinness has now vowed to extend the license deadline even further, arguing that the initial date would not give officials enough time to adjust.

She said the extra time was needed “in order to address a possible short-term financial stability risk associated with a sudden disruption in access to clearing services.”

Ms McGuinness hinted she could end up extending the license last month, when she said there were no plans to surprise the market with “sudden twists” or “cliffside decisions” “.

David Schwimmer, managing director of the London Stock Exchange, also said last week that he expected the EU to allow its banks to continue clearing transactions through London because “this is a extremely important service for the EU institutions that use it, so it would be bad for them if they were cut off ”.

Clearing is essential for the proper functioning of financial markets, ensuring that transactions worth billions of pounds are settled even if one of the parties goes bankrupt.

It also plays a crucial role for London as a financial center, and the LCH branch of the stock exchange dominates the market. A defeat in the struggle for control would result in a significant loss of UK influence to the benefit of the EU.

Politicians on the continent have been pushing for years to allow EU derivatives to be allowed in the bloc instead of London, but UK officials have said the imposition of restrictions could backfire.

Bank of England Governor Andrew Bailey has warned Brussels against a protectionist takeover plot to steal business from the City, arguing that the EU will undermine efforts to consolidate stability in the aftermath of the financial crisis if it succeeded in seizing part of the compensation. Square Mile Market.

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