By Huw Jones
LONDON, Sept 14 (Reuters) – In the latest sign the EU may be taking a more accommodative approach to post-Brexit Britain, the bloc’s Spanish presidency has proposed watering down a law that would effectively force banks to shift business from London to the continent.
The European Commission has proposed a law, now being scrutinised by European Union states and the European Parliament, to end “excessive exposures” to clearing houses which are based outside the bloc.
The EU has long been irked by the London Stock Exchange Group clearing the bulk of euro-denominated interest rate swaps through its London-based LCH unit.
The draft law proposes that customers in the EU would have to open an “active account” for clearing a minimum amount of euro derivatives, effectively forcing banks to shift business from London to Deutsche Boerse’s Eurex in Frankfurt.
But the Spanish EU presidency wants to water this down.
“The active account requirement should not be based on quantitative thresholds in a first phase,” it has proposed as a compromise for member states in a document seen by Reuters.
“Indeed, the novelty of the requirement and the need for market participants to gradually adapt to it should be properly taken into account,” it added.
Under the draft law, EU securities watchdog ESMA would determine minimum clearing thresholds. The Spanish presidency also proposes curbing the size of increases to any thresholds.
Leading users of derivatives markets last week urged the EU to ditch plans for mandatory accounts, saying it would hurt competitiveness.
The European Parliament is also finalising its own position, before it meets with EU states to thrash out a final text.
Lawmakers also back active accounts but with some modifications, draft cross-party compromises seen by Reuters for a vote in parliament show.
EU clearing customers “shall clear at least proportions” of euro derivatives in an active account, the compromises say, specifying no minimum clearing figure from the outset.
“ESMA shall develop draft regulatory technical standards to specify how often new positions are to be entered into the same account in order for that account to be considered ‘active’,” the parliamentary compromises say.
If not enough clearing is being done in the EU within 18 months, ESMA should specify the proportion of clearing that each customer must undertake through their EU accounts, the compromises say.
EU customer access to UK clearers like LCH expires in June 2025, but renewal to some extent is expected.