The Financial Times reported today that the EU is developing rule changes that could see London stripped of one of its flagship financial businesses by enabling territorial restrictions on the clearing of some euro-denominated transactions even before Britain leaves the union.
Although the form of intervention is as yet undecided, the European Commission is reported to be considering backing legal changes to give the European Central Bank a remit over the location of key market infrastructure.
French officials are seeking to have restrictions on clearing included in legislative proposals scheduled soon after Britain initiates the formal Article 50 exit process next Spring. A move to restrict euro-clearing outside the eurozone is nevertheless said to be likely prior to Britain’s expected withdrawal from the EU in 2019.
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Defending London’s euro clearing business has become an ongoing concern with London being the world’s biggest centre for clearing euro derivatives, handling three-quarters of all transactions, with an average daily value of $573 billion, according to an Intercontinental Exchange (ICE) paper.
According to the Financial Times: “Forced repatriation of euro clearing would deprive European banks of access to liquid trading and clearing facilities and create fragmentation, increasing costs considerably for banks and customers.”
Simon Kirby, the UK’s City minister, has also warned that the euro clearing business would probably move to New York if the EU attempted to undermine the UK’s dominant position, leaving Europe “worse off”.
France’s President François Hollande has, however, called for euro-denominated clearing to be relocated to the euro area after Brexit whilst a French central bank official has pressed the commission to address the issue in light of Brexit through an update to EU rules on derivatives trading and clearinghouses set to be published by April. As yet, there has been no change of policy within the commission.