European regulators have set new rules to make sure big banks and investment firms use their EU clearing accounts, not just keep them open for show. This move aims to reduce the EU’s reliance on UK-based clearing houses after Brexit.
What Are the New Rules?
- The European Securities and Markets Authority (ESMA) has published final rules for the so-called “Active Account Requirement.”
- These rules apply to firms that clear more than €3 billion in certain euro and Polish zloty derivatives.
- Affected banks must show their EU accounts can handle a sudden, threefold jump in trading volume.
- They also need to clear different types of trades so regulators know the accounts are truly active.
Why Is This Happening?
- Many European banks currently use London-based clearing houses, which worries EU officials.
- If access to these UK services is cut off, it could threaten financial stability in the EU.
- The new rules are meant to make sure EU banks can keep trading smoothly even if London becomes unavailable.
How Much Time Do Banks Have?
- Once a firm crosses the €3 billion threshold, it has six months to set up a compliant EU account.
- Firms already clearing at least 85% of their trades in the EU don’t have to meet all the operational requirements, but they still need to keep an account.
Are All Banks Treated the Same by the EU?
- No. The rules are stricter for bigger banks:
- Banks with less than €6 billion in trades have lighter requirements.
- Banks with more than €100 billion have to meet tougher deadlines and reporting rules.
What Else Do Banks Need to Do?
- Run yearly stress tests to show their accounts can handle big spikes in trading.
- Assign staff to manage these clearing accounts.
- Report to national regulators every six months.
What Do Experts Say?
- Some industry groups worry the rules will be costly and force banks to make unnecessary trades just to comply.
- ESMA responded by making reporting simpler and giving banks more flexibility in how they show their accounts are active.
What’s Next?
- The European Commission has three months to officially adopt the rules.
- After that, they need approval from the European Parliament and Council.
- These changes are a key part of the EU’s plan to strengthen its own financial system after Brexit.