By Huw Jones
The London Stock Exchange and other derivatives clearing houses in Britain will be granted temporary access to the European Union from January 2021, the bloc's executive European Commission said on Thursday.
Britain left the EU in January, but has full access until the end of December under a transition arrangement. Future access in financial services depends on whether the bloc finds that UK rules are equivalent to its own, a far patchier form of access.
"The European Commission intends to adopt a time-limited equivalence decision for the United Kingdom for central clearing counterparties of derivatives," the EU executive said in a statement.
"This decision is being taken to address the possible risks to financial stability related to the specific area of derivatives clearing."
It did not specify the period it would cover.
The announcement will come as a relief to the LSE as it avoids the need to serve notice on EU customers in September to shift their positions out of Britain by the end of the year, a complex and costly undertaking for banks at short notice.
The LSE, which had no immediate comment, clears the bulk of euro-denominated interest rate swaps and EU policymakers want the activity moved to EU rivals like Eurex in Frankfurt. Time-limited access will put pressure on banks to move positions from London.
Britain and the EU failed to complete all assessments on equivalence by a June 30 deadline.
The EU's financial services chief Valdis Dombrovskis said there was no guarantee that access would be granted even where equivalence is available.
"The assessments may lead in each of the areas to decisions on equivalence or to no equivalence. Our decisions will be based on a comprehensive assessment, including of the EU's interest," Dombrovskis said.
Derivatives clearing is the only area where a sudden cut off could harm financial stability, the Commission said.
Many financial firms in Britain have opened hubs in the EU to continue serving customers in case of no direct access, though the LSE has no licence inside the bloc to clear interest rate swaps.
(Reporting by Huw Jones; Editing by Barbara Lewis and Mark Potter)