LONDON The European Union will present a draft law that gives itself powers to force euro-denominated clearing to shift from London to the bloc after Brexit, the Financial Times reported on Monday.
The EU's European Commission will say on Tuesday that it wants a new system to vet whether, and under what conditions, non-EU clearing houses should be allowed to handle large volumes of euro-denominated business, the FT said, citing a document.
A clearing house stands between two sides of a trade to ensure its smooth and safe completion.
The bulk of clearing in euro-denominated derivatives is done in London, but euro zone policymakers have objected to this, saying that after Britain leaves the EU in 2019 they would have little say over an activity they see as core to euro zone stability.
The draft law will need approval from EU states and the European Parliament.
The draft legislation says the bloc's watchdog, the European Securities and Markets Authority, or ESMA, could agree with EU central banks that a particular clearing house is of "substantial systemic significance", the FT said.
The Commission would then decide if the clearing house would need to relocate activities to the EU if it wants the regulatory approvals needed to operate in the EU single market.
The draft law does not seek a specific cap on the amount of euro clearing that can take place outside the bloc, the FT said.
Most euro-denominated clearing of derivatives is done by a unit of the London Stock Exchange (LSE.L), whose head said on Monday that relocation would have little financial impact as it has a clearing house in Paris that is fully authorised under EU rules.
A global derivatives industry body warned on Monday that shifting clearing of euro-denominated derivatives from London to the European continent would require banks to set aside far more cash to insure trades against defaults, a cost that would be passed on to companies.
(Reporting by Huw Jones, editing by Susan Fenton)