The EU Commission is planning a major extension of permission for EU banks to use clearing for euro derivatives securities in London years after Brexit.

She proposes an extension by three years until the end of June 2025.

The EU Commissioner for Financial Services, Mairead McGuinness, told the EU finance ministers that this would be discussed with the member states.

This would give the multi-billion dollar clearing business in the British capital an unexpectedly long transition period after Brexit.

Originally, after leaving the EU, a one-and-a-half year deadline until June 2022 was set.

Philip Pickert

Business correspondent based in London.

  • Follow I follow

It's about clearing, i.e. the settlement of derivative securities transactions denominated in euros, with a volume in the high double-digit trillions each year.

Despite Brexit, the London Stock Exchange's clearing house LCH continues to dominate the derivatives settlement business with a market share of 80 to 90 percent.

A four-digit number of jobs depends directly and indirectly on this.

After Brexit, many EU politicians wanted this business to be quickly brought to the EU, preferably to the Deutsche Börse in Frankfurt.

As justification, the financial market supervisory authority in the European Central Bank (ECB) referred to problems in controlling clearing houses outside the EU, which could potentially endanger financial stability.

costs in the billions

But the practical difficulties and costs of moving to a new central clearing location seem to outweigh this. Banks claim that it would probably cost several billion euros. London has the advantage of processing in several currencies, whereas Frankfurt mainly offers euro clearing. In letters to the EU Commission, various European banking associations asked for the London license to be significantly extended. Conor Lawlor from the lobby organization UK Finance has now welcomed the Brussels authority's push for a three-year extension. The International Swaps and Derivatives Association and the Futures Industry Association also welcomed the clarity.

Of course, the Frankfurt lobby organization Frankfurt Main Finance was not very enthusiastic. When asked, her boss Hubertus Väth said that from the point of view of the financial center Frankfurt, at least “the clear statement from Brussels that one is dissatisfied with the current distribution of 80 to 20” was positive. By this he means 80 percent clearing in London, only 20 percent on the continent: “Even if three years may sound long, it is now the fine print that counts. The Commission has announced measures to end this dependency on London.” He expects clear steps to be taken in the next few months, be it on the question of capital backing or possibly even the end of the exemptions for clearing for pension funds. "The clearing of these large European portfolios then needs a homeand logically that can only be Frankfurt,” said Väth.