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Exclusive – EU Parliament expected to soften euro clearing relocation powers

by January 12, 2018 General

By Francesco Guarascio

(Reuters) – The European is aiming to soften plans to give regulators the power to force London’s main house to relocate if it wants to continue doing business in the single market after Brexit, an lawmaker said.

Euro is one of the main battlegrounds between and in divorce talks that will shape how Europe’s financial market is divided up when leaves the

The proposed in June to give broad powers to itself, the and the allowing them to force foreign houses deemed “substantially systemically important” to move into the bloc, or face exclusion from the market.

“We don’t want to give those bodies this right to use total discretion in deciding what is cleared where,” Danuta Hubner, of the legislature, told

Hubner, who is the leading lawmaker on clearing, said her report on the Commission’s plan, due to be finalised by the end of January, will include stricter conditions for regulators to determine whether should be moved.

She said she was confident would back her amendments, although other prominent lawmakers have previously called for a sweeping relocation of euro business from to the after

Any new rules would also need approval from member states, which are competing to attract business from London, Europe’s biggest financial centre, after

If confirmed by parliament, Hubner’s unexpected move is likely to be welcomed by the financial industry, which has warned that forced relocation could split markets, increase trading costs and diminish the status of the euro – besides threatening thousands of jobs in the City of

At the moment, most derivatives denominated in euros are cleared in through LCH, a subsidiary of the Stock Exchange

L> which reported record volumes last year across multiple services.

Its interest rate derivatives service, SwapClear, which dominates of euro-denominated swaps or derivatives, processed trades with a notional value of more than $873 trillion in 2017.

is the only house operating in the that, once turned into a foreign company by Brexit, could be deemed substantially systemically important by regulators, Hubner said. Its German rival is a comparable size, but the new rules would not apply to it because it is in the

“We take additional criteria, and among them is the costs for the economy,” said Hubner, who is a former

She said relocation decisions should also consider whether a service provided by a foreign house could be replaced by companies within the If not, the relocation could be put on hold, said Hubner.


houses, also known as central counterparties, sit between two sides of a financial trade to ensure it is smooth and completed safely.

The importance of houses to the financial system has increased since the global financial crisis because regulators around the world have pushed for more derivatives to be cleared by third parties in a bid to reduce risks.

is currently one of 17 houses authorised in the Another 28 foreign central counterparties in countries such as Hong Kong, Singapore, and United States, are also allowed to operate in the

Under the law proposed by the Commission, non-counterparties operating in the single market under a so-called equivalence regime and deemed “systemic” would be subject to stricter supervision.

The allows non-members to operate in the bloc if deems that the other country’s legal and regulatory regime is at least as good, or equivalent, as its own.

Those counterparties classified as “substantially systemically important”, however, could face relocation so they can be overseen more closely by the bloc’s supervisors.

Hubner, a Polish lawmaker and member of the main centre-right political group in the parliament, said the decisions needed to be more evidence-based and the powers of regulators should be less discretionary than envisaged so far.

The Commission said in its June proposal that it would clarify criteria to assess the systemic importance of houses in further regulations, expected six months after the is adopted by the European

The Commission’s proposals need the backing of the and a qualified majority of states to become law.

Although her draft report on could be seen as a boost for Britain, Hubner stressed that the country’s financial sector was unlikely to be given special treatment in any new trade deal with the

She said the best option for Britain’s financial interests would be to maintain full access to the market with an agreement similar to those the bloc has with and

Such a deal would imply that would have to make contributions to the budget and accept the jurisdiction of the Court of Justice – options the has ruled out so far.

Hubner also said the wants agreements on several issues such as data protection and customs, as well as clearer rights for citizens in Britain, before it could approve any trade deal.

(Reporting by Francesco Guarascio; additional reporting by Huw Jones; editing by David Clarke)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)