The European Union won't pull up the drawbridge on Britain's financial services sector, and reducing reliance on the City of London for euro clearing could take years, a top European Commission official said on Tuesday.
Last week, the EU executive said that EU market participants could continue to clearing euro denominated derivatives in London beyond June 2022, when permission was due to expire.
Since the London Stock Exchange clears about 90% of euro denominated swaps, the extra time would allow the bloc's capacity to expand clearing, a core part of the financial system's plumbing.
The city of London is a global financial centre we will always want to use because it is next door, it's convenient. John Berrigan, head of the commission's financial services unit, told an event held by the Brussels think tank CEPS that the issue is one of balance.
In the next few years, that balance will have to be worked on, according to Berrigan.
Banks say that changing the London Stock Exchange to Deutsche Boerse in Frankfurt would be costly and fragmented markets.
Before the EU decides on the length of Britain's market access extension, it is necessary to wait for a report from the bloc's markets watchdog ESMA to make a decision on the length of Britain's market access extension. The ESMA report is expected to reach conclusions by the end of year on whether UK clearers are so systemic that EU business should be moved to the bloc.
The commission will determine what measures are required to move clearing, and how long it will take to implement them while minimising costs and stability risks, according to Berrigan.
Berrigan said if you make it open ended, the risk is that you will never finish it. It is not about protectingionism or drawing on drawbridges, it's about finding the right balance in terms of our relationship, in terms of our alliances. Froukelien Wendt, a member of the clearing supervisory committee, said the report looked at the effect of cutting EU market participants from clearers in London.
There are also benefits that are related to the ability of EU supervisors, EU authorities, particularly in times of crisis, to access information and be able to intervene effectively, Wendt said.
Berrigan said that the EU will have to build up best in class clearing capacity that is attractive and competitive.