Clearing the way: EMIR 3.0 challenges London’s grip on Euro derivatives

Key Takeaways

• EMIR 3.0 is expected to usher in a new era, but there are still several obstacles to overcome especially with the active account.
• The transition will require coordination, investment, and technology across the board.
• Redrawing the EU and UK clearing map.

The clearing of Euro derivatives has been a bone of contention between the European Union and the UK for several years. Brexit opened the door for the EU to gain greater control, but it has been five years, and there has been minimal movement. Although London clearinghouses continue to dominate the Euro derivatives clearing landscape, there is hope that the region’s latest legislative iteration – the European Market Infrastructure Regulation (EMIR 3.0) and the final technical standards – will be a catalyst for change.

One of the first attempts was in 2011, when the European Central Bank (ECB) issued a policy paper calling for central counterparties (CCPs) that cleared a significant proportion of euro-denominated financial instruments to be located in the Euro area. The UK successfully challenged the ECB’s plans, with the European Court of Justice (ECJ), ruling that the activity could not be repatriated because the country was in the bloc.

EMIR 3.0: entering the fray

That is no longer the case. EMIR 3.0, which came into force late last year, intends to bring clearing services under EU oversight. It includes the Active Account Requirement (AAR) – a pivotal new obligation aimed at reducing excessive exposures to third-country CCPs. Banks and asset managers in the Eurozone now need an account with an EU-based clearinghouse to clear specific, systemically important derivatives contracts such as Euro interest rate swaps (IRS).

The first wave was June 2025and comprised firms with a monthly exposure of up to €3 bn in IRS and €1 bn in credit default swap (CDS). There are still loose ends in that the AAR has exemptions and a fluid definition of relevant categories based on type, maturity, and value. This makes the process of determining what trades are in scope more difficult.

To this end, the European Securities and Markets Authority (ESMA) launched a consultation last November, followed by the final regulatory technical standards (RTS) in June 2025.

Changing the tone: industry pushback and ESMA revisions

The industry feedback was negative, with respondents noting that “the active account requirement should not result in financial institutions being forced to execute additional or unnecessary transactions.”

Some of the red flags raised were around increased operational and cost burdens, and a lack of consistency with Europe’s attempts to simplify regulation. In response, ESMA offered to streamline operational conditions and stress-testing, with particular focus on risk exposures requirements, representativeness obligations, and the fulfillment of operational conditions.

Onerous reporting requirements were also highlighted. This included the suggestion that EU derivatives users should disclose individual trade IDs stemming from their Euro interest rate derivatives (IRD) exposures to regulators in real time. The altered framework has firms reporting their positions every six months with fewer details.

On activities and the risk exposure requirements of EMIR 3.0’s reporting obligations, ESMA initially recommended firms provide gross and net notional amounts cleared for each subcategory and class of derivatives to both European and third-party CCPs as part of the representativeness obligation. This was revised to only the gross notional amount outstanding of the aggregate month-end average position for the previous 12 months to be reported at the aggregate level.

However, the authority expressed uncertainty as to how this rule change will play out, stating that this depth of information may not be enough for national competent authorities to decide whether counterparties are eligible for exemptions, and is not a complete reflection of a position’s risk level.

Respondents also pointed out that a firm’s CCP onboarding process already met some of the originally proposed operational capacity requirements. This was rectified with firms that are already participants in an EU CCP not having to meet further operational or documentation rules.

Operational hoops: London’s continued dominance in clearing

Given the complexity and scale, the transition will not be easy or happen overnight. In fact, intense lobbying from European derivatives traders, worried about financial instability, pushed ESMA to extend the equivalence agreement further. Now, major UK-based CCPs – ICE Clear Europe. LCH and LME Clear – will keep their EU clearing licenses for another three years, until 30 June 2028.

This may explain why London continues to have a lock with London Stock Exchange’s LCH SwapClear handling a record €20 trillion in euro IRS in Q1 2025, up 18 percent from the previous year, culminating in a dominant 92.9 percent market share, according to figures from Clarus FT. There has been more movement on the CDs side with LCH SA in Paris capturing the business. However, there is no competition since ICE shut its London-based CDS clearinghouse in 2023.

The road ahead for EU CCPs

Despite the breathing space, the direction of travel is clear, and plans should be well underway for the migration. Moving significant volumes of clearing activity from London to EU-based central counterparties is a complicated exercise. Existing market structures and relationships will be disrupted, and new bonds will need to be formed. Reorganizing these networks will require substantial coordination, investment, and time.

Conclusion: EU’s long-term goals for financial stability

EU-based CCPs will also have their work cut out to handle the increased volume of transactions. Scaling up operations will require significant upgrades in infrastructure and technology, which are costly and complex processes. The importance of success cannot be underestimated. More than just repatriating clearing, it goes to the heart of policymakers’ main objectives of bolstering financial stability and creating a capital markets union.