Brussels to finally ease post-Brexit clearing fears with equivalence agreement

Brussels is preparing to unveil concrete plans to grant EU financial institutions access to London's clearing houses in the event of a no deal Brexit, prompting relief in the City and among businesses across the continent.

The draft proposals could be published as early as tomorrow.

It comes after the Bank of England, trade bodies, and clearing houses called for urgent clarity on temporary arrangements first mooted by the EU last month, in order to protect derivative contracts worth trillions of pounds being moved out of London.

Clearing houses, which must give companies three months' notice, had been primed to tell European clients they would not be able to accept their business after 29 March, when the UK is set to officially leave the EU.

The proposal is not believed to have a set time limit and would be on the condition that UK regulators share information with the European Securities and Markets Authority (ESMA), the Financial Times first reported.

But City insiders are unfazed by the demand for information sharing and welcomed the move as positive progress.

Trade groups including the International Swaps and Derivatives Association, the Futures Industry Association, and the International Capital Markets Association and the Association for Financial Markets in Europe (AFME) wrote to Valdis Dombrovskis, the EU commissioner in charge of financial stability, last Friday pressing home the severity of the situation.

Following reports of the draft proposals yesterday AFME's managing director of Brexit, Oliver Moullin, told Morning Wire: “Further clarity from the Commission on its proposals to adopt temporary equivalence in a no-deal scenario would be very welcome.

“This is important to ensure financial stability and avoid market disruption.”

The UK has ramped up pressure on Brussels in recent weeks, calling for legal certainty that EU-based firms would still be able to access London clearing houses in the event of a no-deal Brexit.

The Bank of England warned the process of closing or transferring derivative contracts worth trillions of pounds would need to begin this month in the absence of clarity.

The Bank has also said EU-based firms have derivative contracts worth a notional £69 trillion with UK central clearing counterparties, £41 trillion of which mature after Brexit.

Moving the contracts out of the UK could cost European businesses €22bn (£19.3bn) a year.

Last week deputy governor Sir Jon Cunliffe told the Treasury Select Committee clearing houses needed more definition of the “conditionality, scope and timescale” of the temporary permissions granted by the EU.

Governor Mark Carney also pushed the European Commission last month for greater clarity.

Earlier today Canada Corporation policy head Catherine McGuinness hammered home the urgent need for a solution.

She said: “The urgent problem is about the need to give people three months notice if they can’t serve, and if we work back from the 29 March that notice expires in a couple of weeks,” she said.