David Milliken

LONDON (Reuters] – The European Union did not need to set a time limit for clearing houses in Britain that can serve bloc customers, Andrew Bailey of the Bank of England stated on Thursday.

Bailey stated at an annual dinner of TheCityUK’s financial services lobby that he was happy with the EU’s decision this week to expand temporary equivalence, which allows EU access to Britain’s derivatives clearinghouses – for three years until June 2025.

However, he stated that it was not logical – even if it was focused solely on financial stability – for the EU set a deadline after which British rules will be deemed no longer to be equivalent and end cross-Channel cooperation.

Bailey explained that maintaining a deep shared commitment to open markets, open financial systems and strong and appropriate regulatory standards with cooperation to support them is a way to ensure this equivalence.

Many EU officials and politicians were irritated that European companies would prefer clearing euro-denominated transactions at London to the less global financial centres of the euro zone.

Following Brexit, EU companies were prevented from accessing wide variety of British financial services.

However, in the case euro-denominated clearing an abrupt end would have caused disruptions in markets due to the large volumes involved and the refusal of banks and asset managers in shifting the business to Deutsche Boerse in Frankfurt.

LCH Unit in London of the London Stock Exchange clears approximately 90% euro interest rates derivatives. It is a contract that companies across Europe use to cover themselves against unanticipated moves in borrowing cost.

Officials said that Tuesday’s agreement by the EU to extend until June 30, 2025 the permission to Britain to clear its clearing houses in order to serve customers within the bloc was the last extension.

Bailey stated that global frameworks are better than regional silos for financial stability.

He stated that “seeking to fracture the international system is not justified given the success of post-financial crisis approach.”