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EU plans to control post-Brexit Euro clearing could fall foul of U.S. regulators, says Hogan Lovells

13 June 2017

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Rachael Warren

Senior Public Relations Adviser
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The European Commission announced proposals today to impose greater control on Euro-denominated clearing, which could potentially lead to certain "systemic" non-EU clearing houses being forced to relocate to within the EU.

This is generally seen as an attempt to encourage Euro clearing to move away from London after the UK's exit from the European Union. However, the proposal could run into difficulties with U.S. regulatory authorities.

Hogan Lovells financial institutions partner Michael Thomas said:

"Much will depend on where the EU decides to set the thresholds beyond which a clearing house will be of "systemic" importance. If the Commission effectively imposes a cap on the size of clearing houses outside the EU, this could in principle affect clearing houses beyond the City of London. You might begin to see pushback from U.S. regulators for example, if it means that U.S. clearing houses are subject to EU supervision or even being asked to relocate to the EU. We have already seen concerns expressed earlier this year by the U.S. Commodity Futures Trading Commission about the EU's plans for a relocation policy of this kind."

Today the European Commission proposed that the European Securities and Markets Authority (ESMA) should be given powers to assess whether a non-EU clearing house that is clearing Euro-denominated securities is of systemic importance to the financial and economic stability of the EU.

"Systemically important" clearing houses outside the EU will be subject to increased EU supervision if they want to clear Euro-denominated securities, and some clearing houses of "specifically substantial systemic importance" may be required to relocate to one of the EU member states.

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