LONDON (Reuters) -The European Union should not have set a time limit on how long clearing houses in Britain can continue serving customers in the bloc, Bank of England Governor Andrew Bailey said on Thursday.
Bailey told an annual dinner for British financial services lobby TheCityUK that he welcomed this week’s EU decision to extend temporary equivalence – allowing EU access for Britain’s derivatives clearing houses – by three years to June 2025.
But he said there was no good reason – if the EU was focused on financial stability – for it to set a time limit after which it will automatically deem British rules as no longer being equivalent, thereby ending cross-Channel activity.
“Maintaining a shared deep commitment to open markets and open financial systems with strong and appropriate regulatory standards and cooperation to support them means that there need be no time limit to this equivalence,” Bailey said.
Even when Britain was part of the European Union, many EU officials and politicians resented how European companies preferred to clear euro-denominated transactions in London, rather than less international financial centres in the euro zone.
The EU blocked its companies from using a wide range of British financial services after Brexit.
But in the case of euro-denominated clearing, an abrupt end would have disrupted markets given the huge volumes involved and refusal by banks and asset managers to shift the business to Deutsche Boerse in Frankfurt.
The London Stock Exchange’s LCH unit in London clears about 90% of euro interest rate derivatives, a contract widely used by companies in the EU to insure themselves against unexpected moves in borrowing costs.
The EU agreed on Tuesday to prolong until June 30, 2025 permission for Britain’s clearing houses to continue serving customers in the bloc, but officials said it would be the final extension.
Bailey said global frameworks were a better way to ensure financial stability rather than regional silos.
“Seeking to fragment the international system cannot be justified in light of the success of the post financial crisis approach,” he said.
(Reporting by David Milliken, editing by Huw Jones, Kirsten Donovan)
