No backing down! UK sends warning to EU bullies in financial clash – European banks hit

Brexit: Expert discusses 'importance' of UK financial services

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Boris Johnson signed a post-Brexit trade deal with the European Union on Christmas Eve following months of negotiations at the end of an 11-month transition period between the two sides. But those intense talks did not directly cover financial services, an issue that was being negotiated separately. Under rules set by the Financial Conduct Authority (FCA) after Brexit, UK banks can trade derivatives on EU platforms to avoid any damage to business in the bloc.

But there is not a mechanism currently in place to allow EU banks to use platforms in London.

The knock-on effect has seen major EU banks operating in London such as Deutsche Bank, SocGen and BNP Paribas have been unable to get their hands on billions of pounds of business swaps, and have seen rivals hoover them up.

In a statement, the FCA said: “On 31 December 2020, we published a statement on our use of the Temporary Transitional Power (TTP) to modify the application of the derivatives trading obligation (DTO).

“In that statement we said that we would keep our use of the TTP under review and consider by 31 March 2021 whether market or regulatory developments warrant a review of our approach.

“We have not observed market or regulatory developments in the first quarter of 2021 that justify a change in our approach.

“Therefore, we will continue to use the TTP to modify the application of the DTO as previously set out.”

The temporary transitional power (TTP) allows the UK’s financial services regulators to delay or phase-in onshoring changes to UK regulatory requirements arising at the end of the transition period.

The FCA added: “As highlighted previously, our approach is driven by our objectives, and aims to support the ability of firms based in the UK to continue to do a range of international business and serve their global clients, while upholding our G20 commitment in respect of the trading of OTC derivatives.

“We will continue to monitor market and regulatory developments and review our approach if necessary.

“If we do see a case for a change, we will provide sufficient notice to market participants so that any changes can be implemented smoothly.”

Since January, London’s share of euro rate swaps has plummeted to 10 percent from as high as 40 percent as trading moved to Amsterdam and the US, according to figures to figures from data company IHS Markit.

Earlier this week Deutsche Bank, which has a presence in 58 countries, warned EU curbs on branches in London posed revenue “challenges” and put the bloc’s banks at a competitive disadvantage.

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Brussels regulators have admitted there is an issue with bank branches throughout the continent operating in London but have so far refused to ease their own curbs.

The UK is hoping the continued pressure it is piling onto EU bank branches in the capital will eventually persuade Brussels to grant Britain “equivalence”, or full two-way cross-border trading in derivatives with the bloc.

But the EU fears swaps trading could return to London from the bloc, just when the continent is trying to develop the autonomy of its own capital market in the months following Brexit.

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