European banks will still be able to use derivatives clearinghouses in London if the Brexit negotiations run deep into next year, according to the bloc's top financial-services policymaker.
The finance industry has warned of an exodus as early as next month unless the European Union (EU) grants an extension. A previous arrangement to allow trading clients in the bloc to clear transactions in the U.K., known as "equivalence," is due to expire in March.
"Regrettably, the risk to financial stability has not yet been fully removed because industry has not so far fully prepared for a no-deal Brexit," Valdis Dombrovskis, the EU's commissioner in charge of financial services, said in a speech in London. "Therefore, I intend to propose to renew this time-limited equivalence decision beyond that date, to prepare for any eventuality."
Dombrovskis said the length of the extension hasn't been decided.
"One shouldn't expect it being extended, and extended, and extended again," Dombrovskis said at an event held by the City of London Corporation, which runs the financial district. He called on traders to improve their preparations. "There is a strong, strong focus on industry doing its part in mitigating this systemic risk to financial stability."
With the state of Brexit still uncertain and the U.K. in the throes of an election campaign, the financial industry is pleading for continuity in several areas of the markets that don't yet have a Brexit roadmap. London Stock Exchange Group Plc's clearinghouse for interest-rate swaps is the world's largest host to such trades, making it a crucial hub for hedging risks.
The financial industry welcomed the proposal and said it is essential to smooth trading between the EU and U.K.
"It is important that the extension is confirmed as soon as possible," Oliver Moullin, managing director for Brexit at the Association for Financial Markets in Europe, said by email.
Contracts worth about 61 trillion pounds ($79 trillion) are held between U.K. and EU institutions, according to Bank of England figures.
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