FT: US Treasury calls for stronger regulation of clearing houses

The Trump administration has broken with its own drive towards financial deregulation by calling for heightened regulation of clearing houses as it said the UK’s planned exit from the EU raises the urgency of establishing a clear global regime.

A senior Treasury official said Brexit increased the need to determine how to police the London Stock Exchange Group’s LCH clearing house — the London-based institution vital to US market stability — as clearing risks had not been resolved by post-crisis reforms. He spoke as the Treasury department unveiled sweeping recommendations for capital market reforms, including steps to streamline rules on derivatives, securitisation and equity issuance.

On clearing houses, which sit in the middle of trades, the report said: “Given their importance to the financial system and broader economy, it is important that [they] be subject to heightened regulatory and supervisory scrutiny.”  The senior Treasury official said Brexit was one of the main reasons for the department’s focus on clearing houses. “We’ll have to sort out work on a new regulatory regime between Europe and the US,” the official said.  He noted that while post-crisis reforms of the Dodd-Frank act included specific provisions on winding up or “resolving” troubled banks, they said less about handling

“We’ll have to sort out work on a new regulatory regime between Europe and the US,” the official said.  He noted that while post-crisis reforms of the Dodd-Frank act included specific provisions on winding up or “resolving” troubled banks, they said less about handling clearing houses.  “So I don’t know whether it requires a new statute or just regulation, but it’s part of Dodd-Frank that was less developed and should be clarified,” the official said.

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