LONDON, Feb 7 (Reuters) - The European Union said on Wednesday it has reached a provisional deal on a law aimed at shifting euro derivatives clearing by banks based in the bloc from London to the EU.

The bulk of clearing in euro denominated interest rate swaps, widely used by companies to hedge against unexpected moves in borrowing costs, is done by the London Stock Exchange Group.

Clearing ensures a stock, bond or derivatives trade is completed, even if one side of the transaction goes bust, and helps build liquidity in trading in a certain location.

Brussels wants EU regulators to have direct oversight of euro clearing for banks and asset managers based in the bloc, particularly since Britain's departure from the EU and requirement to comply with its financial rules.

"This will bring more clearing services to Europe and enhance our strategic autonomy," said Vincent Van Peteghem, finance minister for EU presidency Belgium, which helped to negotiate the agreement with the European Parliament.

The deal sets a "solid active account requirement", meaning banks and asset managers in the bloc must have an account with an EU based clearing house to clear contracts such as euro interest rate swaps.

There will be a number of requirements to demonstrate that the accounts are actually being used, "including requirements for counterparties above a certain threshold to clear trades in the most relevant sub-categories of derivatives of substantial systemic importance".

"Furthermore, a Joint Monitoring Mechanism is created to keep track of this new requirement."

At the time of Brexit in 2020, UK based clearing houses were given EU permission to continue serving customers in the bloc until June 2025, piling pressure on market participants to shift clearing from London to centres such as Frankfurt, Madrid and Stockholm.

EU banks have criticised the law, saying that being cut off from global pools of multi-currency liquidity at LSEG in London could damage their international competitiveness. (Reporting by Huw Jones; Editing by Andrew Heavens and Alexander Smith)