By Huw Jones
LONDON – The European Union must cut its heavy reliance on derivatives clearing in London in the same way as the bloc is ending its dependency on Russian energy due to the war in Ukraine, EU financial services chief Mairead McGuinness said on Wednesday.
The EU has agreed to allow clearing houses in Britain, such as the London Stock Exchange’s LCH arm, to continue serving banks and asset managers in the bloc until June 2025 to give time to build up clearing capacity inside the EU.
McGuinness said she would propose legislation in October which could include incentives for banks to clear inside the bloc, and disincentives, such as potential capital charges, when clearing in London.
Pension funds and public entities could be required to clear their derivatives in the EU, she added.
“It’s time now for Europe, the EU of 27, to make very strong decisions on the financial stability and the financial system, just as we are doing today very critically and very urgently around our over-dependency on energy from Russia,” McGuinness told a European Central Bank event.
LCH clears the bulk of euro denominated interest rate swaps, long a bone of contention with EU authorities and the European Central Bank, but pressure on banks to voluntarily move clearing from London to Frankfurt has made little headway.
“There is some resistance to change because people say today the system works so why would we change it,” she said.
The EU must cut overdependence on UK clearers in the medium term to build up its own capital market and avoid threats to financial stability, she said.
“Ideally, I would like this one to happen faster,” she said, adding that she wants the “heavy lifting” done by the time her term as commissioner ends in 2024 to ensure a smooth transition.
Feedback from a public consultation now closed will be used to create a balanced legislative proposal.
“This isn’t about us trying to take the business from the United Kingdom… I see this potentially as a win-win for the United Kingdom and the European Union,” McGuinness said, adding that a stronger EU capital market is good for global markets.
(Reporting by Huw Jones; Editing by Hugh Lawson and Ed Osmond)
