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09 March 2017

Financial Times: MEPs seek ‘extraterritorial’ oversight on London euro clearing

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Members of the European Parliament have urged regulators to press for “extraterritorial” oversight of the City of London after Brexit as a condition for allowing the UK financial centre to keep its dominance in the lucrative market for clearing euro-denominated derivatives.

MEPs told European supervisors and officials at a hearing in Brussels that Brexit challenged EU rules on market access for overseas firms and that the bloc had to be able to police threats to its financial stability.

Burkhard Balz, a member of German chancellor Angela Merkel’s CDU party, said the EU should set firm rules for clearing euro derivatives. London is the largest market for euro derivatives clearing.

“We have serious concerns about the future of these transactions once Brexit is implemented,” he said, adding that such activities must come “under the jurisdiction of EU institutions”.

Jakob von Weizsäcker, a German member of the parliament’s socialist group, said the EU should develop a “sliding scale” of policy measures to make sure financial risks to Europe did not build up beyond its borders.

This would involve “robust” rules on third country access, “sliding to elements of extraterritoriality, sliding as a last resort . . . to repatriation” of key trading activities, he said.

Regulatory officials and MEPs said extraterritorial supervision could be an alternative to repatriating activities to Europe — which they said was legally complicated, risked fragmenting markets and would run counter to practices in other parts of the world. France has pushed for such a so-called “location policy” to be applied to euro clearing.

MEPs also said tough monitoring of UK regulation and supervision would be needed if UK-based financial companies are to use access rules known as “equivalence” standards to operate in Europe after Brexit. Access rules for Britain will feature heavily in the country’s negotiations on a new post-Brexit relationship with the EU. [...]

Full article on Financial Times (subscription required)

© Financial Times

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