10 May 2017

Financial Times: Washington warns against EU location policy

[...] Christopher Giancarlo, acting head of the US Commodity Futures Trading Commission, made clear that moves by the EU to tighten control over the clearing of derivatives trades “will undoubtedly inform the evolution of US regulatory policy”.

Mr Giancarlo was responding to a discussion paper published last week by the European Commission, which is considering ways to increase the EU’s powers to supervise clearing houses based outside the bloc, and if necessary introduce a “location policy” to force them to shift activities.

The EU’s ideas are a response to Brexit and arise out of concerns that London could retain vital financial infrastructure for euro-denominated trading while no longer being covered by the bloc’s rules. Most euro-denominated swaps clearing takes place in the UK.

Brussels officials say “extraterritorial” supervision powers would largely mimic those of US regulators. But they accept that introducing a strict location policy after Brexit would have few international precedents.

Mr Giancarlo played down the need for a location policy. “To date, the US has not deemed a body of water — even as large as the Atlantic Ocean — as an impediment to effective clearing house supervision and examination,” he said.

While Brussels’ potential policy shifts are not targeted at the US, Mr Giancarlo’s comments show how a location policy could raise hackles on the other side of the Atlantic and increase concern over a Balkanisation of financial markets.

US regulatory officials have been steadfast in opposing any plans to relocate euro-denominated clearing, even if the US potentially stood to benefit from London business being diverted to America. They have backed banks and exchanges in warning that such a policy would make trading euro-denominated instruments more difficult and expensive. [...]

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