The EU has granted Britain so-called 'temporary equivalence' access since it cut ties with the bloc last December, allowing the LME and clearing houses run by the London Stock Exchange and ICE to continue serving customers on the continent until June 30, 2022.
"Given that we have been forewarned of the position, it is important that we take swift steps to mitigate the potential implications of this and ensure that alternative arrangements can be put in place in good time," the LME said in a memo on its website.
The LME, which trades and clears metals contracts, said it would work closely with members to ensure an efficient transfer of clearing or closing out of existing positions to minimise potential disruption.
Options include resigning membership of the LME and then trading and clearing contracts through another member of the exchange, the LME said.
The derivatives industry is increasingly worried about the market disruption the lack of access to the EU would cause to metals, interest rate and credit default swaps contracts worth trillions of euros and want clarity from Brussels as soon as possible.
EU pressure on banks to shift clearing from London to Frankfurt has had little impact so far as the bloc's regulators assess if such a move should be mandated in some way.
Although the LME is not part of this assessment, the end of equivalence would mean it too would be cut off from the bloc, where there are no alternative products for users to hedge their metal purchases.
Industry officials expect the EU to grant Britain a temporary extension, but with high volume interest rate and credit default swaps in euros excluded, meaning clearing would have to move to the bloc, perhaps over a "transition" period.
"That is what I expect to happen and I believe the European Commission is working on that now," said a senior EU banking official with knowledge of industry discussions with the bloc.
Doing nothing in the face of the limited shift in clearing to date would damage EU credibility, the official added.
A European Commission spokesperson said the focus is on reducing "excessive reliance" on market infrastructure outside the bloc to create an open, strong and resilient EU financial system.
"In particular, the goal is not to move or take business away from London but rather to build our own infrastructures," the spokesperson said.
(Reporting by Huw Jones; Editing by Kirsten Donovan)
By Huw Jones