France Calls On EU to Block City of London Clearing After 2025

(Bloomberg) --

France is advocating for the European Union to bar U.K.-based clearinghouses from the bloc after 2025, a sign that the recent three-year extension of access may only be a temporary reprieve for the City of London.

Clement Beaune, the French junior minister for European affairs and a key voice in President Emmanuel Macron's government, said the EU needs to set a “firm deadline” if it wants clearing trades to ultimately be brought onto the continent. That clarity is needed to ensure finance firms can adapt in time.

“It is desirable that we set a credible horizon for building a eurozone clearing market,” Beaune said in Paris on Friday. “The worst thing is to not give a clear signal to the financial sector.”

Such a move would mark a shift from the EU's stance over the past few years, where temporary waivers have extended the U.K.'s access through to June 2025. The removal of access could harm one of the crown jewels of the City of London and one of its chief attractions as an international finance center. 

“Either we consider that the clearing market will always be London-based - fine, maybe,” Beaune said. “Or we consider that there is a sovereignty issue in making a European market, and we must say that there will be a time when clearing in the U.K. will stop.”

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Mairead McGuinness, the EU's commissioner for financial services who proposed the extension, has made it clear that the bloc's strategy in the medium term is to reduce the EU's reliance on London. Both U.K. and European banks, investment managers and hedge funds had called on the Commission to extend their access, warning of significant market disruption.

“The Commission consulted Member States on this draft equivalence decision which would extend the equivalence decision for 3 years - until end June 2025,” a Commission official said. “All member states expressed support for it.”

The extension is expected to be confirmed next week, the official said. A public consultation will also begin on measures to build liquidity at EU clearinghouses, ways to make the bloc a more attractive clearing hub and the supervisory arrangements for such firms.

French Push

France has long pushed for more financial activity to move into the bloc. Clearing is a key part of the finance world supporting banking, technology and legal jobs across the City of London. Clearinghouses such as the London Stock Exchange Group Plc's LCH operate at the center of markets, collecting collateral from both sides of a trade to ensure a default on one doesn't spread panic through financial markets.

Some have warned that Europe isn't yet ready to offer full clearing services and that any forced shift could be a problem for banks. Xavier Rolet, former head of LSEG, said in an interview that if the top three euro-zone banks were forced to clear euro-denominated interest-rate swaps in the bloc they would lose the benefits of compression at clearinghouse LCH Ltd., which is part of LSEG. 

And it is possible that stripping London of access would see transactions move to U.S. venues instead of the EU. “The U.S. is currently the only credible alternative to LCH,” he said.

The battle over clearing highlights how far apart the EU and U.K. are from reaching agreement on financial services that would maintain the status quo. 

A Memorandum of Understanding between the U.K. and the E.U. to facilitate discussions on financial services issues remains unsigned as post-Brexit spats multiply, including Anglo-French tensions over fishing licenses and U.K. threats to override the agreement in goods transiting Northern Ireland. Other equivalence decisions outside of clearing that allow London-based finance firms to offer various services in the EU are also in limbo.

Read this explainer on equivalence

Beaune says he expects clarity around clearing soon.

“I think it's very important that we have a firm deadline” on access to U.K. clearing houses, he said. “This is a debate that has not yet been decided, but that will have to be in the coming weeks.”

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