The most powerful banking groups in the eurozone have demanded long-term access to London’s multibillion-dollar derivative trading market, dealing another blow to Brussels’ plans to take over the City’s business.
In a joint letter, the financial trading bodies said the bloc faces a “cliff edge” unless it expands exemptions that allow transactions of European Union institutions to take place in the United States. UK and other major markets.
The letter was signed by organizations such as the International Swaps and Derivatives Association, the European Association of Cooperative Banks, the European Banking Federation, the Futures Industry Association, the Global Financial Markets Association and the Nordic Securities Association.
He said: “If the temporary [arrangements] are allowed to expire without being replaced by equivalency decisions in all key jurisdictions, this will lead to increased costs and operational burdens for EU businesses, while also resulting in trapped assets.
The European Commission has refused to grant Britain the so-called equivalence status for trading in derivatives, which would allow companies indefinite access to the City’s deep markets, although UK post-Brexit rules are broadly in line with its own.
Instead, in what is widely seen as a political decision, Brussels only granted temporary permission to European Union companies to trade derivatives in London. This will expire at the end of June 2022.
Professional bodies have asked Brussels to grant the City permission to trade in derivatives for at least three additional years. The current relief concerns so-called intragroup transactions, which are exchanges between parties of which at least a part is not based in the bloc, including subsidiaries of companies based in the EU.
EU banks rely heavily on London’s € 660 trillion (£ 563 trillion) market to settle transactions between institutions, and the process is essential for the smooth functioning of financial markets.
Derivatives are financial instruments that underpin banking products used by millions of European consumers, such as fixed rate mortgages. Critics said removing access to the UK would likely result in higher costs to the public and could even threaten financial stability.
Before Brexit, there were concerns that the EU would quickly cut off the ability of companies to do business in London in an attempt to suffocate the City and force companies to move overseas. Hundreds of thousands of jobs would be threatened by the UK which voted the leave.
However, the exodus was much smaller than expected with less than 10,000 workers relocating according to EY data.
Brussels was forced to separately admit that it would extend London’s lucrative euro clearing rights earlier this month as part of a post-Brexit boost for the City.
The Commission has cleared the continent’s banks to continue accessing the UK clearing market beyond an initial deadline of June 2022, fearing their removal could harm financial stability.
Mairead McGuinness, the bloc’s financial services commissioner, said the Commission believes EU companies are “too dependent” on the UK for certain clearing activities and will develop the capacity of the EU to avoid medium-term financial stability risks.
But she added: “However, in order to face a possible risk of short-term financial stability, linked to a sudden interruption of access to clearing services, the Commission will soon propose an extension of equivalence for companies based UK. [clearing houses]. “
The move represented a significant victory for the UK financial services industry after France and other rival countries attempted to take control of the market from London clearing houses, which act as intermediaries in derivative transactions between the banks.
Earlier this year, the EU ordered the big banks to explain why they were not moving their euro-denominated derivatives trading business out of Britain.
Bank of England Governor Andrew Bailey has warned Brussels against a protectionist takeover plot to steal business from the City, arguing that the EU will undermine efforts to consolidate stability in the aftermath of the financial crisis if it succeeded in seizing part of the compensation. Square Mile Market.