Brussels gives City firms extension on clearing deadline

Brussels has yielded to demands from City firms to allow them to continue to provide a crucial service that keeps financial markets well oiled.

The European Union has given British financial institutions more time to provide crucial clearing services to clients in the bloc.

The extension was granted due to a lack of capacity within the European financial system to absorb large outflows of Euro-denominated business from London.

Mairead McGuinness, EU financial services commissioner, said the region would need to strengthen the attractiveness of its clearing offer, expand capacity and reform supervision before it took on the City’s workload.

“This proposed way forward strikes a balance between safeguarding financial stability in the short term… and safeguarding financial stability in the medium term,” McGuinness said.

Brussels diplomats noted the decision on clearing houses was taken to avoid getting drawn into broader tensions with the UK and sparking possible retaliatory measures.

Under the old deal, City clearing houses would be unable to provide clients in the EU with their services beyond June 2022. 

This cut off point has now been pushed back. The EU did not provide details on the new deadline.

Since Britain left the EU, clearing has become a political football between Brussels and London, with neither side ceding any ground on negotiations over where Europe’s central clearing hub will be in the future.

Historically, the London Stock Exchange has cleared the bulk of Euro-denominated derivatives. 

But, Brussels has been rapidly expanding capacity within its financial system to ensure it can take on a large chunk of derivative clearing business, with Frankfurt’s Deutsche Boerse being ear marketed as the central clearing hub.