Banks and investors step up opposition to EU derivatives plans

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Asset managers, pension funds and brokers across Europe have stepped up their opposition to EU plans to shift trillions of euros of derivatives out of London, warning the move could hurt European companies and investors.

Eleven trade associations, representing both institutional investors and large banks and brokers handling derivatives trades, said on Thursday that they “strongly recommended” the policymakers ditch a controversial proposal to push a minimum amount of euro derivatives through so-called “active accounts” held at EU-based clearing houses.

The groups said the proposal was “especially damaging” for EU companies and “ultimately, it would harm European pension savers and investors.”

The call from a wide-ranging group of investors steps up the lobbying to overturn the European Commission’s plans, which centre around forcing customers to route an as-yet undermined minimum amount of euro interest rate swaps and futures to the bloc.

Clearing houses are central to staving off market instability, sitting between counterparties on deals and preventing defaults from cascading through the financial system.

The vast majority of the global business for euro derivatives is handled at London’s LCH clearing house but some politicians in the EU are unhappy that it is concentrated outside their regulators’ direct oversight. LCH is currently managing around €136tn of positions, more than 90 per cent of the global market, according to data from ClarusFT.

Brussels has given the market until the middle of 2025 to move more euro business to the eurozone but the policy would force a portion of clearing to move from LCH to Deutsche Börse in Germany.

The vast majority of business has remained in London because the costs of splitting up and transferring derivatives positions is a long-term project that would run into several billion euros, the industry argues.

The EU plans are part of a package intended to boost Europe’s capital markets and reduce the EU’s reliance on the UK’s financial services sector after Brexit. The proposals are currently before European parliamentarians and Brussels hopes to have the proposals signed off before elections next year.

But the signatories, which include the European Fund and Asset Management Association, Federation of the Dutch Pension funds, Finance Denmark, as well as derivatives groups FIA and Isda, said the plans “would negatively impact EU capital markets”.

The groups said the proposals would make the EU firms less competitive against other companies around the world, who would not have to work under similar restrictions.

“A location requirement for market participants would make the EU one of the only advanced capital markets with such a policy,” it said.