Photographer: Krisztian Bocsi/Bloomberg

EU Has to Control Euro Clearing After Brexit, Lawmakers Say

Updated on
  • EU Parliament committee eyes legislative changes on clearing
  • Lawmakers seek transitional deal with U.K. to avoid turbulence

European Union law should be changed to ensure that the clearing and supervision of euro-denominated derivatives trades is controlled by EU institutions after Brexit, lawmakers in the bloc’s parliament said.

The majority of derivatives transactions are cleared by companies based in the U.K., including a “large number” denominated in euros, lawmakers in the assembly’s Economic and Monetary Affairs Committee said in a statement before the start of talks on Britain’s secession from the EU. The document will contribute to forming the parliament’s priorities for the talks.

The location of a key part of Europe’s financial plumbing has been a major concern among bankers and politicians since Britain’s vote to leave the EU. The lawmakers’ views follow calls from French and German officials to claw back clearing in euro-denominated derivatives from U.K., where trillions of euros of swaps trade. The European Central Bank has tried in the past to take euro-clearing away from the U.K.

In the document, the lawmakers also called on Brexit negotiators to avoid turbulence in financial markets by striking a transition agreement with the U.K. before it leaves. An arrangement to soften the blow from U.K.’s exit would ensure “legal certainty and continuity,” they said.

Single Market

Michel Barnier, the EU’s chief Brexit negotiator, has also said he supports the idea of a transitional phase to give companies time to adjust to a new relationship with the U.K. Without such an arrangement, they could lose access to the EU’s single market from one day to the next.

Members of the Brussels-based EU assembly added that a transition deal “should preserve the integrity of Union law” and the European Court of Justice, meaning that for the U.K., it may also mean a slower pace of disentangling itself from the common bloc.

Due to the interdependence of the British and EU financial sectors, lawmakers also stressed the importance of U.K. regulations remaining “as close as possible to EU ones.” Valdis Dombrovskis, the European commissioner in charge of financial services, has called on the U.K. not to abandon international standards on financial regulation.

The European Commission and European supervisors should make sure that member states don’t use their national discretion as a “bilateral bargaining tool” with the U.K. or financial institutions based there, the lawmakers said. That echoed comments by Steven Maijoor, the head of the European Securities and Markets Authority, who has warned against “supervisory competition” as EU nations vie for business relocating from London.

— With assistance by Silla Brush, and Ian Wishart

(Updates with details from document in eighth paragraph.)
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