REPEAT: MNI: U.S/Euro CCPs Needn't Worry Yet - Dombrovskis

Repeats Story Initially Transmitted at 06:55 GMT Oct 16/02:55 EST Oct 16

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By Tara Oakes

     WASHINGTON (MNI) - The European Commission are working with the U.S.-based

Commodity Futures Trading Commission (CFTC) to reassure the regulator over plans

for greater EU oversight of euro clearing EC Vice President Valdis Dombrovskis

told Market News in an exclusive interview. 

Dombrovkis, though, sought to calm U.S. jitters about threats to the well-honed

system of euro central counterparty clearing houses.

"This proposal is now with EU co-legislators which are just starting their work,

so it's way too early to speculate which potential effect on which CCP there

could be," said Dombrovskis, whose remit covers financial stability and

regulation as well as the euro.

"We are ready to work with the CFTC and find solutions should questions or

issues emerge in this context. This does not call into question already-existing

equivalence decisions, so those decisions remain valid," he added.

The draft proposal to allow the EU to assess in what cases CCPs outside the bloc

are allowed to handle derivatives in the single currency has so far faced a

rocky path with member states, as revealed by MNI in September.

It has also gone down like a lead balloon across the Atlantic, with CFTC

Chairman Christopher Giancarlo saying at the Tallinn Eurofi conference in

September that it was a "major concern". 

     The CFTC's fears on the issue linger, MNI understands, despite Friday's

agreements with the EC on a common approach to certain derivative trading venues

and the EC's adoption of an equivalence decision on the U.S. framework for

non-cleared OTC derivatives.

The euro CCPs proposal, launched in June, would most severely hit the City of

London's lucrative single currency clearing operations if they were deemed

"substantially systemically important" and referred to ESMA and the ECB.

While Dombrovskis said the EC are working "very constructively" with the CFTC in

the States, the same reassurance cannot be offered to London post-Brexit.

"As the EU, we also need to adjust to this new reality, that the EU's largest

capital market is going to leave," he told MNI.

"It raises this question of how we can ensure financial stability within the EU

in this situation. And, of course, it implies that there are certain decisions

we need to take in the interest of financial stability, because we will be in a

new situation," he added.

Talks on the UK's exit from the bloc reached a new nadir this week, with Chief

Negotiator Michel Barnier saying there was a "deadlock" after the fifth round.

The EU Council will decide later this week if sufficient progress has been made

on the key areas of citizens' rights, Ireland and financial settlement and how

to progress: but the UK can be under no illusions about the EU's current

assessment.

"We are not there yet. We will not be able to report substantial progress in

those three areas," Dombrovskis said. 

     But the tone may be softening despite the insistence that sufficient

progress is lacking: a draft Council document suggests that "internal

preparatory discussions" could be launched to prepare for second stage, future

relationship negotiations. However, the draft has not yet been agreed on.

U.S. POLICY AND POLITICS

Despite transatlantic nerves on the Brexiteer-baiting push for euro clearing

oversight, Dombrovskis told MNI most of the EU's dealings with the U.S. on

financial sector regulation have been "developing quite well". 

"We consistently see that there is a willingness to engage: there is a

commitment for financial regulatory cooperation, and there is an approach which

to an extent is similar to that we are applying in the EU, where we are

introducing more proportionality in the system," he said.

"We do not see any tendency towards deregulation and I think this should be

avoided: there are certain lessons which we have learned from the crisis, but

it's true that we can reach the same prudential results in a more

growth-friendly way."

The harmonious relations do not extend to all aspects of U.S.-EU ties, though,

with the bloc objecting to President Trump's threats to pull out of the Iran

nuclear deal.

"This is not a bilateral U.S./Iran deal. It's a multilateral deal so it cannot

be scrapped unilaterally," Dombrovskis said, adding that from an international

point of view it remains "valid" despite Trump's rhetoric.

But EU member states are not immune to the same populism which swept Trump to

power and Brexiteers to victory in the UK. Germany's far-right AfD shocked many

by its first entry into the Bundestag in September, and Catalonia's independence

struggles are becoming a headache for the EU, who insist it is a domestic matter

for Spain.

For Dombrovskis, closer Economic and Monetary Union is needed not for its own

sake, but to strengthen the economic growth and make sure that citizens see

concrete benefits of the bloc's positive macroeconomic figures instead of

turning to Euroscepticism.

"The lack of convergence since the crisis has been one of the major reasons of

different tensions and populism," he told MNI.

"We are emphasizing that we need to relaunch convergence among member states and

also within member states, ensuring more inclusive economic growth."

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com