(Bloomberg) — The European Central Bank withdrew its request to gain more power over derivatives clearinghouses, exposing a rift among European Union authorities over how to regulate the increasingly critical market.
The Governing Council unanimously decided to retract the demand it made in 2017, according to a statement from the Frankfurt-based institution. ECB President Mario Draghi heavily criticized the outcome of political negotiations reached by EU policy makers this month, saying the powers the ECB would gain are too narrowly focused.
The changes agreed by the EU’s national governments and the bloc’s parliament “seriously distort” the original proposal and interfere with the “independent exercise by the ECB of its monetary policy competence,” Draghi said in a letter.
The ECB bank had pushed to gain “clear legal competence” in the area of central clearing in 2017. The issue had gained prominence after the Brexit referendum, as the U.K.’s departure means the bulk of euro-denominated derivatives will be cleared outside the bloc. Clearinghouses stand between the two sides of a derivative wager and hold collateral, known as margin, from both in case a member defaults.
Draghi criticized the agreement for not giving the central bank authority over clearinghouses based inside the region. He also said that handing the ECB an exhaustive list of powers would deprive it of “discretion to adopt measures which are necessary to carry out the Eurosystem’s basic task.”
Policy makers are now planning to proceed with the reform of clearinghouse supervision without changing the ECB’s statutes, according to two officials involved in the talks. That could mean the U.S. emerges as an unlikely winner of the dispute, as regulators had been concerned that the ECB would gain direct power over firms under their watch.
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