Pedestrians pass illuminated skyscraper offices in the Canary Wharf business, financial and shopping district of London, UK. Picture: BLOOMBERG/Simon Dawson
Pedestrians pass illuminated skyscraper offices in the Canary Wharf business, financial and shopping district of London, UK. Picture: BLOOMBERG/Simon Dawson

London — The EU is set to delay a decision on allowing clearing houses in London to continue clearing euro transactions for EU-based clients due to Britain’s plan to breach part of the Brexit divorce settlement, a derivatives industry source said.

The delay is one of the first warning shots from the EU as UK MPs voted late on Monday to pass the first reading of a bill that would breach parts of Britain’s withdrawal agreement from the bloc.

Brussels had said it would grant Britain “time-limited” access to euro derivatives clearing from January to avoid huge disruption of markets. A unit of the London Stock Exchange (LSE) clears more than 90% euro-denominated swaps that are widely used by companies.

The European Commission was due to formally take that decision on Wednesday but is now expected to delay it until the end of the month, the source said, citing an industry meeting late last week with a European Commission official.

Before the commission can take a decision it must first hold a five-day consultation with EU states, the source said.

A commission spokesperson said the consultation was launched on Monday to begin the adoption process in line with what it announced in July in its Brexit readiness announcement.

The delay is linked to Britain’s perceived unpicking of the withdrawal agreement it signed with the bloc, the source added.

Britain left the EU in January and transition arrangements that still allow unfettered access to the bloc end on December 31.

Without legal certainty of access to the EU, the LSE’s clearing unit LCH must give its clients in the bloc three-months’ notice to move billions of euros worth of swaps positions out of Britain.

Euro clearing has long been a battleground between Britain, keen to preserve London’s clout as a global finance hub, and EU policymakers, who believe the bulk of activity should reside in the eurozone under the eye of the European Central Bank.

But moving large swaps positions from LCH to rivals such as Deutsche Boerse’s Eurex in Frankfurt in a short time would be costly for banks and unnerve markets.

Brussels had therefore opted to allow more time for this to happen, though it had not said how much time.

If Britain’s bill to override parts of its Brexit divorce settlement becomes law it could sour its attempts to have access to other financial activities in the bloc such as trading shares.

Reuters

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