Brussels has waved through new rules that will force derivative traders to clear deals through the European Union, dealing the latest blow to the City.
London could lose control of its lucrative clearing market after EU officials backed proposals to shift more business activity to operators across the bloc.
The provisional rules require banks and asset managers above a certain threshold to clear derivative contracts, such as euro interest rate swaps, through accounts with EU-based clearing houses.
Vincent Van Peteghem, Belgium’s finance minister who helped negotiate the agreement with the European Parliament, said: “This will bring more clearing services to Europe and enhance our strategic autonomy.”
Clearing houses serve as middlemen between buyers and sellers for financial assets and ensure deals go through even when counterparties default.
They have become a crucial part of the banking system following the 2008 financial crisis which exposed the risks around derivative trading.
The controversial change is designed to make EU clearing houses more attractive, effectively ending Europe’s reliance on UK-based rivals following Brexit.
London remains the largest centre in Europe for clearing activity, with nearly all euro-denominated trades handled by UK clearing houses, such as LCH and LME Clear.
Clearing has been a key area of debate since the EU referendum, with officials eager to repatriate €735 trillion (£626 trillion) market from the Square Mile.
Following Brexit, Brussels granted City clearers permission to continue offering services to EU customers until June 2025.
This temporary arrangement piled pressure on European banks to shift clearing away from London to rival EU financial hubs, such as Frankfurt, Madrid and Stockholm.
However, banks have warned that the EU’s proposals to seize control of the clearing market are anti-competitive and will increase costs.
The London Stock Exchange Group said that EU customers remain concerned about rules forcing them to open operational accounts at EU-based clearing houses.
The company said: “We call for proportionality in the implementation of these requirements in order to ensure that EU firms are not negatively impacted.”
The political agreement is subject to final approval from the European Council and European Parliament before entering into force.
A new joint monitoring mechanism will be created to monitor whether traders are complying with the new clearing rules.
