European banks will still be able to use derivativesclearinghouses in London if the Brexit negotiations run deep intonext year, according to the bloc's top financial-servicespolicymaker.

The finance industry has warned of an exodus asearly as next month unless the European Union (EU) grants anextension. A previous arrangement to allow trading clients in thebloc to clear transactions in the U.K., known as "equivalence," isdue to expire in March.

"Regrettably, the risk to financial stability has not yet beenfully removed because industry has not so far fully prepared for ano-deal Brexit," Valdis Dombrovskis, the EU's commissioner incharge of financial services, said in a speech in London."Therefore, I intend to propose to renew this time-limitedequivalence decision beyond that date, to prepare for anyeventuality."

Dombrovskis said the length of the extension hasn't beendecided.

"One shouldn't expect it being extended, and extended, andextended again," Dombrovskis said at an event held by the City ofLondon Corporation, which runs the financial district. He called ontraders to improve their preparations. "There is a strong, strongfocus on industry doing its part in mitigating this systemic riskto financial stability."

With the state of Brexit still uncertain and the U.K. in thethroes of an election campaign, the financial industry is pleadingfor continuity in several areas of the markets that don't yet havea Brexit roadmap. London Stock Exchange Group Plc's clearinghousefor interest-rate swaps is the world's largest host to such trades,making it a crucial hub for hedging risks.

The financial industry welcomed the proposal and said it isessential to smooth trading between the EU and U.K.

"It is important that the extension is confirmed as soon aspossible," Oliver Moullin, managing director for Brexit at theAssociation for Financial Markets in Europe, said by email.

Contracts worth about 61 trillion pounds ($79 trillion) are heldbetween U.K. and EU institutions, according to Bank of Englandfigures.

Copyright 2019 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.