Brexit: EU power grab on UK's €930bn clearing business would be ‘severely detrimental to Europe'

FIA has 'grave concerns' that a forced relocation would 'fragment markets, raise costs for end users, and weaken the stability of the financial system'

Ben Chapman
Tuesday 06 June 2017 16:43

A global financial trade body has said it has “grave concerns” over EU plans to force the relocation of the €930bn (£810bn) per day clearing business from London to the EU after Brexit.

The Futures Industry Association, warned on Tuesday that it “strongly believes” that moving the clearing of transactions denominated in euros would be “severely detrimental to the economic interests of the EU”.

It would “fragment these markets, raise costs for end users, and weaken the stability of the financial system, and we therefore oppose such a policy”, the FIA said.

The European Commission is preparing proposals that would impose restrictions on London’s huge market for clearing euro-denominated financial transactions.

According to official documents seen last month by The Independent, these would force UK operators of clearing houses to either relocate to mainland Europe or to be directly regulated by European authorities.

Clearing is a process whereby trades go through an organisation known as a clearing house which holds collateral centrally and ensures transactions go ahead in the event of a default. It is designed to prevent a domino effect where the default of one counterparty causes a string of losses for others.

Clearing is a crucial part of the financial infrastructure and London is the dominant centre in Europe. Around 70 per cent of euro-denominated trades, with a notional value of €930bn (£792bn), are cleared in the capital each day, according to a 2016 House of Lords report.

The FIA said the location of clearing activity should be, “driven by legitimate market forces operating within a regulatory framework suited for a global market”.

It went on: “The euro is one of the world’s great reserve currencies. If it is to maintain this status, it should be traded freely and openly. Policymakers should proceed with caution on possibly restricting the use of the euro currency.”

The FIA adds its weight to a number of influential voices warning against a power grab by other EU nations. Last month Xavier Rolet, chief executive of the London Stock Exchange, said a proposed move could cost investors €100bn (£83bn) over five years.

The LSE boss said that moving clearing, which is estimated to support up to 100,000 jobs would, “fragment global markets,” making them less efficient.

Also last month, Icap founder Michael Spencer told the BBC’s Today Programme that ending euro clearing in London could damage Europe as well as the UK.

He said: “I haven’t heard the Japanese phone up and say we’re not having yen cleared in London or the Australians phoning up and say enough of you clearing our dollars, we’ll have that back.

“So, this proposal in Europe to repatriate euro clearing to the eurozone, is nothing more than a real nasty piece of economic nationalism and protectionism.”

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