European Commission backs greater oversight of post-Brexit clearing

Tensions over euro clearing after Brexit set to increase as EC backs repatriation attempt.

The European Commission (EC) has backed new powers for the European Central Bank (ECB) to have greater oversight of the euro clearing industry, a key topic of Brexit negotiations.

The proposal by the ECB back in June called for greater regulatory oversight of central counterparties (CCPs) in the UK clearing euro-denominated derivatives.

In the latest move by the EU to repatriate euro clearing during the Brexit negotiations, the EC stated it “strongly recommends the initiative to provide the ECB with a clear regulatory competence in the area of central clearing.”

This follows a ‘letter of intent’ from Commission president Juncker in September, urging the European Parliament and Council to approve the ECB’s recommendation.

The future of euro derivatives clearing has become a key battleground between the UK and EU as the two separate.

The vast majority of business for euro derivatives comes from London, however the ECB fear the clearing and settlement of euro-denominated derivatives outside of the EU exposes it to financial stability risks.

Market participants argue that forcibly moving euro derivatives clearing away from CCPs, such as LCH, would mean dramatic cost increases.

The judgement on euro clearing now goes to the European Parliament and the European Council to adopt the proposed changes by the ECB.