20 February 2019

Financial Times: EU should trust UK on clearing post-Brexit, says BoE

[...]While EU authorities have a “valid interest” in monitoring the City’s clearing houses, they should defer to UK regulators, David Bailey, director of markets infrastructure at the BoE, said in an interview.

“We have lots of experience co-operating with overseas regulators, making sure where they have a valid interest in a UK clearing house, they have the relevant input they need,” he said.

Since Britain voted to leave the EU in 2016, Brussels has planned more direct oversight of the thousands of euro-denominated derivatives trades that are processed in LCH, ICE Clear Europe and LME Clear, London’s trio of clearing houses.

Brussels regulators are aiming to finalise tougher regulations for overseas clearing houses in the next couple of months. They will give EU authorities the power to decide whether some clearing activities should be repatriated to the eurozone if they are judged a systemic risk to the bloc.

“There is a lot of ex-ante information sharing, co-operation and debate that can happen but there needs to be a clear decision-making framework and ultimately, the globally accepted standard is that that sits with the home supervisory authority,” Mr Bailey said.

Dictating the daily management of clearing houses, including approval over the type of collateral they may accept, are among the powers the plans could give EU regulators.

“It’s really important to get it right,” Mr Bailey said, referring to the new regime. “The last thing you want in a crisis is you’ve got potentially overlapping or conflicting requirements being placed on systemically-important institutions,” he said.

While the BoE is concerned about the long-term regulation of the institutions after Brexit, authorities on both sides of the Channel have headed off market fears of potential market disruption in the event the UK leaves the EU abruptly at the end of March. Temporary licences to clearing houses operating in the UK and EU. The EU licences last only for a year but give policymakers more time to finalise the new rules.

The comments from Mr Bailey come after the chief executive of LCH, the London Stock Exchange Group-controlled business at the centre of the debate, said this week that he would be “broadly comfortable” with more oversight from EU authorities, as long as it was in concert with the BoE.

“Clearing houses are generally only in the spotlight during crises . . . we need to be able to operate in those scenarios,” said Daniel Maguire. “One of the key ingredients is everybody knowing what they can do, what they need to do and when.”

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