(Adds more detail)
By Huw Jones
LONDON, Sept 21 (Reuters) - Banks and other financial market
participants in the European Union will have until mid-2022 to
cut their "excessive reliance" on derivatives clearing houses in
Britain, the bloc's executive European Commission said on
Monday.
Britain, which hosts Europe's biggest financial hub in
London, left the EU in January and its unfettered access to the
bloc ends in December.
EU financial services chief Valdis Dombrovskis said he has
approved a proposal to allow clearing houses or central
counterparties (CCPs) in Britain to continue serving EU
customers for 18 months from January 2021.
"This time-limited decision has a very practical rationale,
because it gives EU market participants the time they need to
reduce their excessive exposures to UK-based CCPs, and EU CCPs
the time to build up their clearing capability," Dombrovskis
said in a statement.
Clearers stand between the two sides of a trade, ensuring
its orderly completion even if one side goes bust.
LCH, a unit of the London Stock Exchange, clears the bulk of
euro-denominated interest rate swaps that are widely used by
companies to hedge against adverse moves in borrowing costs.
Brussels and the European Central Bank want euro clearing
located in the bloc where it can be directly regulated, viewed
in Britain as an attack on the City of London as a global
financial centre.
"Accordingly, industry is strongly encouraged to work
together in developing strategies that will reduce their
reliance on UK CCPs that are systemically important for the
union," the EU executive said.
Shifting existing swaps positions worth billions of euros
from London would be a complex and costly undertaking for banks.
(Reporting by Huw Jones; Editing by Toby Chopra)
