LONDON, May 16 (Reuters) - The threat of clearing in euro denominated financial contracts being forcibly moved from London to the European Union after Brexit may ease after an EU vote due later on Wednesday.
The EU has proposed a draft law that instructs its regulators to check on "systemic" foreign clearing houses that handle large amounts of euro-denominated assets like interest rate swaps.
If a foreign clearing house's home regulator - the Bank of England in the case of Britain after Brexit - failed to cooperate with EU supervisors, the bloc would require clearing for EU customers to relocate to the EU.
The draft law is seen by Britain as an attack on the City of London financial district where an arm of the London Stock Exchange clears the bulk of euro denominated assets.
In the immediate aftermath of Britain's vote in 2016 to leave the EU then French President Francois Hollande said London should no longer be allowed to clear euro assets.
However, clearing industry officials say the issue is losing political heat as the technical complexity of shifting huge derivatives positions cross-border become better understood.
The European Parliament's economic affairs committee votes on the draft law on Wednesday, and could make amendments which would raise the bar on the relocation of clearing operations.
Parliament's centre right party said in a statement ahead of the ballot that it does not want to require British-based clearing houses to relocate to the EU.
It does, however, want EU regulatory power over non-EU clearing houses if they clear transactions in euros.
"If you want to do business in euros you have to accept that there will be a referee from the European Union, a real referee who has the power to send you off the pitch," said Danuta Huebner, the centre-right lawmaker who is steering the draft law through parliament.
Denying a non-EU clearing house the ability to serve customers in the bloc should remain in the draft law as an "insurance mechanism" in case supervisory cooperation does not work, Huebner said.
Wednesday's vote will show whether her views have garnered enough cross-party consensus.
LCH and its regulator, the Bank of England, have warned that forced relocation would mean fragmenting markets in Europe, bumping up costs and potentially seeing the activity shift to New York.
Rival Deutsche Boerse has sweetened its euro clearing service in a bid to draw more business from LCH in London.
After parliament agrees its position, it will sit down with EU states to thrash out a final version that becomes law. (Reporting by Huw Jones; Editing by Toby Chopra)