HSBC chief executive Stuart Gulliver warned that any moves by Brussels to relocate euro clearing business after Brexit would only benefit financial hubs in US and Asia.
As the EU and UK prepare for divorce negotiations, the former has already proposed a new system to ensure that the clearing and supervision of euro-denominated derivatives trades will be controlled by its own institutions after the split.
The new rules would force UK-based clearing houses to stick to EU regulations and accept requirements set by the European Central Bank. Without such an arrangement, a clearing house may not get some regulatory approvals, leading to operational problems such as European banks facing much higher capital charges when they use it to process their trades.
While attending a conference in Paris, HSBC’s boss today warned that a forced relocation would cause costs to skyrocket as it would lead to “fragmentation” of financial markets in the bloc.
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“Counterparties are private institutions. They’re heavily regulated, [and] they concentrate massive financial risk so if euroclearing is moved here that has a tremendous effect on the netting that can take place from within a central counterpartyit increases the costs,” he said.
He added: “I think it is quite likely that New York will be a beneficiary of this; I think it is quite likely that Hong Kong will be a beneficiary.”
Around £440 billion of euro-denominated trade passes through Britain’s clearing houses every day thanks to so-called ‘passporting’ rules which currently allow them to sell their services freely across the rest of the EU and also give firms based in Europe access to Britain.
The Commission’s proposal has dampened hopes that London will end up hosting the euro-related operations after Britain voted to leave the EU nearly a year ago.
Mr. Gulliver said that the world is currently on the verge of a fundamental transformation in which financial services activities move from a single centre in London towards “distributed financial centres”.