LONDON (Reuters) - A top U.S. regulator warned the European Union against making “unilateral” changes to how the bloc treats foreign clearing houses on Tuesday, saying it would be a “violation of trust”.
In his bluntest comments yet on calls by some European policymakers for clearing of euro denominated derivatives to shift from London to the EU after Brexit in 2019, Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo said they should make new rules with care.
Clearing houses or central counterparties (CCPs) stand between two sides of a trade to ensure its completion, even if one side goes bust and most euro clearing in Europe is done in London by LCH, part of the London Stock Exchange (LSE.L).
The draft EU rules propose that important foreign clearing houses that handle large amounts of euro denominated trades may need joint supervision by EU and UK authorities.
If this was deemed by the bloc to be not working well, then euro clearing would have to move to the EU - a step Britain fiercely opposes as it would undermine the City of London.
The United States already has an agreement with the EU over recognising each other’s clearing houses and Giancarlo is concerned this agreement could be affected by the new EU rules.
Giancarlo told a derivatives industry meeting in Buergenstock, Switzerland that he would consider “any unilateral change by EU authorities” to this agreement to be a “violation of trust and cooperation between the U.S. and Europe.”
“If Brexit is indeed the trigger for a new approach in Europe regarding the supervision of cross-border CCPs, then it must be an approach developed with the cooperation and support of the CFTC,” he said in the speech.
Giancarlo urged the EU to strive with the United States for a “comprehensive and universal solution” that supports strong cross-border markets, adding that this should preserve as much as possible the basic tenets of the EU-CFTC agreement.
Bankers caught in the regulatory cross-hairs say that shifting derivatives positions totalling trillions of euros across the English Channel would be hugely disrupting.
LCH also has a clearing unit in Paris, and rival Deutsche Boerse (DB1Gn.DE) has already said its Eurex Clearing operation in Frankfurt is ready to take on extra euro denominated trades.
Giancarlo also said he expects an accord soon between the EU and CFTC on cross-border trading of swaps.
Reporting by Huw Jones; editing by Alexander Smith