EU banks are demanding access to the city markets, a blow to Brussels – archyde

The eurozone’s most powerful banking groups have requested long-term access to London’s multi-trillion dollar derivatives trading market, which has dealt a new blow to Brussels’s plans to expropriate its business from the city.

In a joint letter, financial trading organizations said the bloc is facing a “cliff” unless it extends exemptions that allow European Union institutions to do business in the UK and other major markets.

The letter was signed by organizations such as the International Swaps and Derivatives Association, the European Association of Co-operative Banks, the European Banking Federation, the Futures Industry Association, the Global Financial Markets Association, and the Nordic Securities Association.

It said, “If the temporary [arrangements] may expire without being replaced by equivalence decisions in all important legal systems, this will lead to increased costs and operational burdens for EU companies and also to trapped assets. “

The European Commission has refused to grant the UK what is known as derivatives trading equivalence status, which would give companies unlimited access to the city’s deep markets, despite the UK’s post-Brexit rules being largely in line with their own.

Instead, in what is commonly viewed as a political move, Brussels has only given European Union companies temporary permission to trade derivatives in London. This is due to expire at the end of June 2022.

The trading authorities asked Brussels to give the city permission to trade derivatives for at least another three years. The current relief relates to so-called intra-group transactions, which are transactions between parties where at least one party is not resident in the bloc, including affiliates of companies based in the EU.

EU banks rely heavily on the London market of € 660 trillion (£ 563 trillion) to handle inter-institutional transactions and the process is vital to the proper functioning of financial markets.

Derivatives are financial instruments that underlie banking products used by millions of European consumers, such as fixed rate mortgages. Critics say disenfranchised access to the UK is likely to result in higher costs to the public and could even threaten financial stability.

It was before Brexit feared that the EU would quickly cut off trading opportunities in London for companies to suffocate the city and force companies to go abroad. Hundreds of thousands of jobs are said to be at risk from the UK exit.

However, the exodus was far less than expected, with fewer than 10,000 workers being relocated, according to EY.

Brussels was forced to separately admit that it would extend London’s lucrative euro clearing rights in a post-Brexit boost to the city earlier this month.

The Commission has given banks across the continent permission to continue accessing the UK clearing market beyond an initial deadline of June 2022, amid concerns that a shutdown would affect financial stability.

Mairead McGuinness, the bloc’s financial services commissioner, said the commission believes EU firms are “too dependent” on the UK for certain clearing activities and will develop the EU’s own ability to take risks over the medium term avoid financial stability.

However, she added: “However, in order to address possible short term risks to financial stability related to an abrupt disruption of access to clearing services, the Commission will shortly propose an extension of equivalence for UK based companies [clearing houses].“

The decision marked a significant victory for the UK financial services industry after France and other competing countries sought to take control of the market from London clearinghouses, who act as intermediaries in the derivatives trade between banks.

Earlier this year, the EU asked major banks to explain why they were not moving euro derivatives trading from the UK.

Governor of the Bank of England Andrew Bailey has warned Brussels against planning a protectionist seizure of power with the argument that the EU would undermine efforts to ensure stability after the financial crisis if it succeeded in conquering part of the clearing market from the Square Mile.


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