Post-Brexit clarity needed for UK clearing houses

A regulatory advisory body to the City of London and TheCityUK has warned that a lack of clarity on the future status of UK-based clearing houses could pose market disruption and a sharp increase in costs to users of financial markets in the EU27 countries

A regulatory advisory body to the City of London and TheCityUK has warned that a lack of clarity on the future status of UK-based clearing houses could pose market disruption and a sharp increase in costs to users of financial markets in the EU27 countries.

The International Regulatory Strategy Group (IRSG) – a practitioner-led financial services body – has assessed what the impact would be on banks and non-financial organisations if the UK and EU approach to regulation for clearing remained unchanged after Brexit. The paper also identifies alternative policy measures for the sector.

The paper, published today, shows the need for a transitional period to avoid a significant risk of market disruption when UK clearing houses will no longer meet current EU regulations once the UK formally leaves the European Union. This will also impact users of financial markets in the EU27, as they will also fall outside of internationally-recognised requirements.

Playing a central role in helping address the global financial crisis, clearing houses manage transactions between financial institutions, such as banks, pension funds and industrial commercial businesses.

The UK processes around 40% of all global trades through clearing houses. Comparatively, the remaining EU27 cumulatively handle less than 10% of the total.

Because an extensive part of the EU markets rely on UK clearing houses, any disruption in the provision of these services would fragment activities and reduce pools of liquidity. This would lead to an increase in the cost for banks and their customers and reduce their ability to bring growth, innovation and financing to the real economy, in both the UK and the EU27.

Any breach of legal requirements means firms would have to hold more capital or face a significant fine.

In order to avoid disruption to the European clearing network, the paper suggests that Government should work with the European Commission to agree and put in place transitional arrangements that will enable markets to continue operating.

Mark Hoban, Chairman of the IRSG said: “London, as Europe’s financial centre, provides vital services to banks and corporates across the EU27. One of those services is clearing, which enables users to reduce risk and ensures the efficient use of capital.

“It is crucial that as part of the Article 50 process an agreement must be reached on transitional arrangements that avoid a cliff edge effect when the UK leaves the EU that risks financial stability and forces firms to hold more capital – a cost that will be borne by their clients.

“That transitional arrangement must bridge the period between when we leave the EU and agreement being reached on the new relationship between the UK and the EU27 and an implementation period to enable the new arrangements to be put into place.”

Notes to editors

The paper does not discuss possible changes to European Central Bank policy on the location of euro-denominated clearing.

The full report can be found here: http://www.irsg.co.uk/resources-and-commentary/irsg-paper-on-ccps-post-brexit

For any media enquiries, please contact:

Millie Allen, Financial Services Media Officer, City of London Corporation

020 7332 1388 / 07710 860 886


About the International Regulatory Strategy Group

The International Regulatory Strategy Group (IRSG) is a practitioner-led body comprising leading UK-based figures from the financial and professional services industry. It aims to be one of the leading cross-sectoral groups in Europe for the financial and related professional services industries to discuss and act upon regulatory developments. The IRSG Council is chaired by Mark Hoban.

Within an overall goal of sustainable economic growth, it seeks to identify opportunities for engagement with governments, regulators and European and international institutions to promote an international framework that will facilitate open and competitive capital markets globally. Its role includes identifying strategic level issues where a cross-sectoral position can add value to existing industry views.

It is an advisory body both to the City of London Corporation, and to TheCityUK.

The IRSG Post Trade Workstream includes representatives from post-trade institutions, exchanges, financial intermediaries, institutional investors and custodian banks, including;

AFME; Bats Europe; BBA; TheCityUK; Clifford Chance; CME Group; DTCC;

Euroclear; FIA Europe; Fidelity; ICE; Investment Association; JP Morgan; LCH Group; LME; London Stock Exchange Group/LSEG.

About the City of London Corporation

The City of London Corporation provides local government and policing services for the financial and commercial heart of Britain, the 'Square Mile'. In addition, the City Corporation has three roles:

  • We support London’s communities by working in partnership with neighbouring boroughs on economic regeneration, education and skills. In addition, the City of London Corporation’s charitable funder, City Bridge Trust, makes grants of around £20 million annually to tackle disadvantage across London.
  • We also help look after key London heritage and green spaces including Tower Bridge, the Museum of London, Barbican Arts Centre, City gardens, Hampstead Heath, Epping Forest, Burnham Beeches, and important commons in London.
  • We also support and promote the ‘City’ as a world-leading financial and business hub, with outward and inward business delegations, high-profile civic events and research-driven policies, all reflecting a long-term approach.

See www.cityoflondon.gov.uk for more details.