UPDATE 1-EU faces French regulator call to fix derivatives to limit Brexit blow

03 Dec 2020 / 02:02 H.

    (Adds more detail)

    By Huw Jones

    LONDON, Dec 2 (Reuters) - France's top securities regulator called on the European Union to amend its derivatives trading rules on Wednesday to avoid damaging its own financial sector after Britain fully leaves the bloc at the end of 2020.

    Robert Ophele, chair of France's AMF, said in unusually blunt comments by a senior regulator that the rules need adjusting to avoid penalising branches of EU banks trading in London.

    The EU has said that under its "derivatives trading obligation" or DTO, EU branches in Britain must use an EU-based platform for trading or a platform in a country like the United States that has been approved by the bloc.

    London is the world's biggest centre for trading over-the-counter derivatives such as interest rate swaps, widely used by companies to hedge against adverse moves in borrowing costs.

    British rules oblige UK counterparties to trade on a UK approved platform, making cross-Channel deals impractical.

    The bloc's European Securities and Markets Authority (ESMA), said last week the clash was due to how Britain applied its own rules and that it would simply monitor the market.

    "If we do so it will be too late. The harm will have been done," Ophele told an online International Swaps and Derivatives Association event.

    "I do hope that the European DTO can still be rapidly adjusted," said Ophele, whose made a similar call a year ago, adding that the EU could grant UK market access for derivatives trading to supersede the DTO rules but that this was unlikely.

    He said the bulk of trading covered by the EU rules is concentrated in London, and that 70% of volumes handled by the EU branches there was at risk of being lost or moved to the United States.

    Brussels wants to create a deep capital market to reduce reliance on the City of London. But Ophele said that trying to do this from scratch in derivatives with "no critical mass" of strong players inside the bloc would be "detrimental", putting the EU at a disadvantage to London.

    He also warned that the EU needs to up its game in financial regulation given that Britain has "made it clear" it will be more "nimble and agile" from January to strengthen the City of London's competitiveness.

    The bloc could make a start by simplifying its securities rules, Ophele said. (Reporting by Huw Jones; Editing by Jan Harvey and Alexander Smith)

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