(Adds more background, industry comment)
By Huw Jones
STRASBOURG, France, Feb 3 (Reuters) - Banks must be forced to clear centrally their $30 trillion off-exchange credit derivative trades and cut risk for investors, the European Union's top financial market regulator said on Tuesday.
EU Internal Market Commissioner Charlie McCreevy told members of the European Parliament that attempts to obtain industry backing for central clearing had failed.
"At the last minute they pulled out of an agreement and now a regulatory approach is necessary," McCreevy said in a statement after a meeting with the EU assembly's economic and monetary affairs committee.
McCreevy said he was urging parliament to amend existing EU rules to bring about compulsory clearing.
The EU assembly and member states are reforming the bloc's bank capital requirement rules to apply lessons from the credit crunch.
And the economic affairs committee's chairwoman, Pervenche Beres, is considering a provision to mandate central clearing of credit derivatives traded off an exchange.
The new rules are due to be adopted by April.
McCreevy said national market supervisors in EU member states and the European Central Bank consider that EU-based central clearing of credit default swaps, a type of credit derivative, is essential for financial stability and oversight.
Big dealers who trade credit derivatives on both sides of the Atlantic would like to use just one clearing venue among those being set up in the United States in order to save costs.
EU policymakers and regulators insist European credit derivatives should be cleared on the bloc's soil to ensure proper oversight.
The International Swaps and Derivatives Association (ISDA), which represents credit derivatives dealers, said it was sticking by its "clear and unequivocal and workable commitment" to quickly set up and use additional ways of limiting counterparty risk.
"We would continue to welcome coordinated global dialogue with all concerned regulators," ISDA said.
In Europe, NYSE Euronext's B-Clear was launched in December but has attracted few customers. Deutsche Boerse's Eurex aims to offer a rival service later this year.
In the United States regulators are also pushing for central clearing and ICE, backed by dealers, and the CME, the world's biggest derivatives exchange, aim to launch clearing services.
Derivatives industry officials said it is not possible to "neatly segment" the sector into EU or U.S. credit derivatives for clearing purposes in a global market.
Multiple clearing houses make it harder to net positions to the lowest counterparty risk possible, they said.
Dealers also feel caught up in a battle between EU and U.S. regulators for control over transatlantic stock exchanges and public pressure to take action amid a financial crisis.
Most clearing volume will likely end up with one clearer in any case, dealers said, citing the example of Anglo-French LCH.Clearnet's SwapClear for global interest rate swaps.
(Reporting by Huw Jones; Editing by Dale Hudson and Sharon Lindores)