Brussels has extended London’s lucrative clearing rights until 2025 in a significant backdown by the European Union and a post-Brexit boost for the City of London.
Mairead McGuinness, the financial services commissioner, said the European Commission will allow banks and money managers based in the EU to clear trades in London until June 2025.
The backdown comes after Brussels granted permission in November for banks on the Continent to continue accessing the UK’s €660 trillion (£563 trillion) clearing market beyond an initial deadline of June 2022, amid fears that cutting them off would damage financial stability.
However, at the time it did not state how long the extension would last.
Ms McGuiness said: “We envisage proposing an extension of the equivalence decision to three years until the end of June 2025.”
The decision is a significant victory for the City and will effectively end efforts by France and other rival countries to seize control of the market from London’s clearing houses.
Clearing houses act as middlemen in derivatives trades between banks and have become a vital part of the financial system since the 2008 financial crisis.
Ms McGuiness also repeated the bloc’s desire to bring more clearing inside the EU’s borders and reduce its “overreliance” on London.
“In the coming weeks, we will also launch a public consultation on measures to make the EU an attractive clearing hub and on the supervisory arrangements,” she said.
“This public consultation will feed into a strategy on clearing to reduce in medium term our overreliance” on the City.
Before the 2016 Brexit referendum, finance chiefs warned that clearing was bound to be lost along with as many as 232,000 jobs in the City. However, a mass exodus of finance jobs out of London has failed to materialise.
The extension came as the City watchdog warned more than 1,000 European companies that they will be kicked out of the Square Mile unless they establish long-term plans to stay in the capital and comply with post-Brexit rules.
The Financial Conduct Authority issued a stark warning to hundreds of European banks, fund managers and brokers using its “temporary permissions regime” that allows EU firms to continue operating in Britain post-Brexit and gives them a chance to apply to do so permanently.
The regulator said the temporary regime “should only be used by firms who want to operate in the UK in the long-term and meet the standards to do so”.
It has already booted out four firms that failed to respond to its mandatory information requests.
Emily Shepperd of the FCA said: “We expect firms operating under the regime to be responsive to our requests for information and that are coherent in their business planning. We will continue to act against firms that fail to meet our standards.”
Ash Saluja, head of financial services at City law firm CMS, said the FCA has been “quick to clamp down” on EU firms that have not met its expectations.
He added: “But it has been noticeably slower in enabling UK firms to do business when processing their applications for authorisation and variations of permission. The irony here is that the UK is one of the most liberal jurisdictions in which to do business on a cross-border basis.”
