Brussels has granted US clearing houses access to the European market in a move that could diminish London’s post-Brexit supremacy in the financial sector.
The European Commission adopted a new equivalence decision on Wednesday that will allow US operators to serve investors on the Continent.
The decision will be seen as a threat to London’s dominance in Europe’s €735 trillion (£649 trillion) annual clearing market, which is critical to the smooth operation of financial markets.
Before Brexit, the UK clearing houses were part of the European regulatory system for financial services and could operate freely across the EU.
Financial services were largely excluded from the UK-EU post-Brexit trade deal forcing firms to rely on ad hoc "equivalence" decisions by the two sides.
Clearing was one of the few areas where the EU granted equivalence to the UK because the bloc is so reliant on British clearing houses.
Operators such as the London Stock Exchange’s LCH have had to rely on a temporary EU equivalence decision since Jan 1.
Clearing houses such as LCH, ICE Clear Europe and LME Clear perform a vital role in greasing the wheels of international finance, ensuring trades are settled even if one of the parties goes bust.
The US is being offered an open-ended equivalence deal, which is more favourable than the 18-month decision granted to the UK at the end of the Brexit transition.
The EU has told banks to use the 18 months to shift their trading in euro derivatives to the eurozone.
Offering equivalence to the US could signal the EU’s desire to open up to more foreign financial centres in a bid to reduce reliance on London.
Mairead McGuinness, the EU’s commissioner for financial services and a vocal Brexit critic, said: “This decision is a significant first step in the process of recognising US [clearing houses] registered with the US Securities and Exchange Commission in the European Union.
“We look forward to continued good cooperation between EU institutions and agencies and the US Securities and Exchange Commission.”
Separately, the UK and Switzerland, which is not a member of the EU, announced plans to negotiate a mutual recognition agreement to reduce barriers between their financial markets. The talks are expected to cover insurance, banking, asset management and capital markets.