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Brussels vows ‘no cliff edge’ over EU banks’ access to UK clearing

EU financial services managers have pledged to avoid market instability and “cliffs” in decisions regarding the ability of European banks to access UK clearing houses. This is a comment that raises investors’ expectations that Brussels is preparing a temporary permit extension.

Myred McGuinness said the European Commission will not be involved in “sudden twists and turns” in a licensing decision that would allow European banks to liquidate billions of dollars worth of transactions in London until mid-next year. Stated. She said decisions on this issue could be made within a few weeks.

However, the Irish Commissioner also took market participants seriously to take the Commission’s request for a long-term transition to the EU for more euro-denominated derivatives businesses following the decision to withdraw from the UK Single Market. Prompted to.

“We need to make sure there is no instability in the short term, but we also need to look at long-term benefits,” McGuinness said in an interview with the Financial Times. “They should read my lips and listen to what I’m saying. We see this as a medium- to long-term strategic issue.”

Western banks and asset management companies Encourage the committee Given the large liquidity of the City of London market, extend the “equivalence” decision on access to the UK clearing house again after June next year. They called on the EU last month for a “long-term approach” to this issue to give the market more time to prepare.

However, the Commission hopes the business will return to the EU as it is dissatisfied with the financial stability risk of processing up to € 80 trillion in open contracts in markets that are no longer under direct monitoring. increase. The clearinghouse is located between transactions and prevents defaults from bouncing back to other parts of the market.

The Commission’s problem is that there have been few signs of a shift in business to EU financial capital since the UK withdrew from the single market earlier this year. According to data provider Ostra, London’s LCH still handles about 90% of all euro-denominated derivatives.

By focusing on one location, users can win positions and save millions of dollars a day in the insurance needed to support their transactions.

McGuinness acknowledged the lack of movement and said, “It wasn’t a surprise because there were no incentives and no bonuses for them to do anything.” They may only be looking at costs. “

But she insisted: “What happens around the movement, which is the point of discussion with us, does not happen overnight, but we believe it can happen over time.”

The EU evaluated London’s strength in liquidation when Britain was part of the single market, but the situation was now different, she said. “We need to take that into account, but we don’t make sharp or hasty decisions, so there’s no edge to the cliff,” she said, “in some public announcements. We’re getting closer, but we’re not there yet, “he added.

Tensions are rising again between the EU and Britain due to the controversy over trade between Britain and Northern Ireland. McGuinness argued that the EU did not want the UK to involve financial services decisions in the controversy over the Brexit agreement.

“At this time, we don’t use or use financial services as a reaction as needed,” she said. “But I don’t know exactly what Britain will do next.”

Nonetheless, she confirmed that a planned memorandum of understanding on regulatory cooperation was finalized by both sides earlier this year, but was not signed, but was delayed by broader tensions with the United Kingdom.

“Technically there, a memorandum,” she said. “It’s no exaggeration to say that everything went well and Brexit’s daily trauma wasn’t in the headline. This memorandum will be implemented and we will have a dialogue.”

Another issue approaching McGuinness’s portfolio is the launch of new bank capital rules to implement the global Basel III agreement.

France has led the push to mitigate the implementation of the so-called Basel III. Parallel stack approach. This helps prevent a significant increase in capital requirements by applying different rules to the two versions of a bank’s balance sheet.

However, McGuinness said the commission would spur that approach and support a stricter “single-stack” regime.

“We are now in a place where we understand that parallel stacks (which we’ve talked about) aren’t right,” she said. She added that the Commission guarantees that there will be no “significant increase in capital requirements” for banks as a result of the new rules.

Brussels vows ‘no cliff edge’ over EU banks’ access to UK clearing Source link Brussels vows ‘no cliff edge’ over EU banks’ access to UK clearing

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