Market News

By Laura Noonan, Bloomberg News

(Bloomberg) -- The European Union proposed allowing London to continue clearing the bloc’s trades until 2028, a departure from its previous vow that the post-Brexit arrangement would end this summer. 

A spokesperson for the European Commission, the EU’s executive arm, said it would consult with member states on extending the transition period for three years, until the end of June 2028. 

“When it comes to clearing and CCPs, financial stability is our overarching objective, as this is the pillar upon which the Savings and Investments Union can develop,” added Olof Gill, the spokesperson, referring to central counterparty clearing houses. It’s part of the EU’s long-running project to develop its financial system, also known as the Capital Markets Union, a core part of the mission for Financial Services Commissioner Maria Luis Albuquerque.

Brussels has spent the past five years trying to wrest control of EU clearing from London, the region’s dominant financial center since Brexit. The effort has been met with skepticism from the financial industry, which believes Europe doesn’t have the infrastructure to handle the trillions of euros in derivative clearing that is done through London exchanges. 

“Two UK CCPs have been identified by the European Securities and Markets Authority (ESMA) as systematically important for the EU’s financial stability,” Gill said Wednesday. “An extension of the equivalence decision is therefore needed to avoid any risks to our financial stability in the short term, and give certainty and clarity to EU financial market participants.”

The deadline for moving clearing has been extended once before, from its original target of June 2022, after finance leaders including Bank of England Governor Andrew Bailey has repeatedly warned of the risk to financial stability if clearing is moved abruptly. 

Since then, the EU has introduced a complex package requiring EU-based banks and others to have active accounts at EU clearing houses to prove that they could migrate activity to Europe in the event of a crisis. The bloc’s more accommodating stance comes against a clamor for pro-business measures that can boost growth. 

--With assistance from Max Ramsay.