(Adds outcome of vote)
By Huw Jones
LONDON, May 16 (Reuters) - The threat of clearing in euro denominated financial contracts being forcibly moved from London to the European Union after Brexit eased on Wednesday after EU lawmakers backed more detailed economic tests for relocation.
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 - 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 - LCH - 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 becomes better understood.
British regulators have signalled a willingness to cooperate with the EU on clearing after Brexit, saying they already do so with the United States.
The European Parliament's economic affairs committee voted by 45 to 4 in favour of the draft law with amendments to impose more detailed economic tests for relocating clearing operations.
The committee backed the need for the bloc's securities watchdog ESMA to examine the costs and benefits of forcing a foreign clearing house to obtain a licence in the EU, and to check if EU customers have viable substitutes to a foreign clearing house.
ESMA would also have to consider the consequences for the outstanding contracts at a foreign clearer, and whether relocation actually cuts systemic risk in the EU.
Parliament's centre right party said in a statement ahead of the ballot that it did 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.
LCH and 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 an attempt to win a quarter of the lucrative business from LCH in London.
Once EU states have agreed their own position on the draft law after the summer, they will sit down with parliament to thrash out a final version that becomes law. (Additional reporting by Peter Maushagen in Brussels; Editing by Toby Chopra and Mark Potter)