The EU is preparing to offer its banks an 18-month extension on access to London’s crucial markets infrastructure as it seeks to prevent a jolt to financial stability when the UK’s Brexit transition period expires at the end of the year.
The European Commission has proposed that access to UK-based clearing houses — which sit between deals and prevent defaults from ricocheting through the rest of the market — should remain undisturbed until the middle of 2022, according to plans seen by the Financial Times.
The proposals reflect London’s pre-eminence in clearing euro-denominated derivatives, and suggests that financial services are a point of leverage for the UK in increasingly strained trade negotiations with the EU.
But Brussels wants EU financial institutions to use the extra time as a breathing space to steadily “reduce their exposure to United Kingdom market infrastructures”, according to the seven-page proposal.
The paper calls for “the scaling down of the reliance” on the UK and says the EU financial sector should develop “a clear process” for achieving this as it adjusts to life after Brexit, arguing the bloc cannot outsource oversight of such critical activities.