While explicitly phrasing an aim to “expand central clearing activities in the EU and improve the attractiveness of EU CCPs in order to reduce the EU’s overreliance on systemic third-country CCPs”, the European Commission has nevertheless decided to extend the equivalence for UK CCPs – to “ensure the European Union’s financial stability in the short-term”.
The European Commission decision was communicated in a press release on Tuesday. The right for UK-based participants (notably including the UK-based main entity of clearing giant LCH) to continue acting within the EU under rules equivalent to those for EU-based players, will now stretch another three-and-a-half years, to 30 June 2025.
Without this new extension by the EU, the equivalence period would have run out 30 June 2022, by a decision made in September 2020.
The European Commission is clear that it would prefer to get rid of the British players; it is just tricky to get services of the same quality up and running:
“Over the course of 2021, the Commission established a Working Group (together with the European Central Bank, the European Supervisory Authorities and the European Systemic Risk Board) to explore the opportunities and challenges involved in transferring derivatives from the UK to the EU. The discussions at the Working Group showed that a combination of different measures to improve the attractiveness of clearing, to encourage infrastructure development, and to reform supervisory arrangements were needed to build strong and attractive central clearing capacity in the EU in the years to come. The timeframe of June 2022 was too short to achieve this. Therefore, today’s extension decision was necessary,” writes the European Commission in its new press release.