EU seeks powers over London's euro clearing after Brexit
A planned regulatory shake-up by Brussels could force some euro clearing operations out of the City of London after Brexit.
The EU has announced plans that could force some euro clearing operations to relocate from the City of London to the eurozone after Brexit.
The European Commission said its plans were aimed at ensuring the EU maintained controls over its financial system after the UK's departure.
They included giving the European Central Bank (ECB), EU central banks and the European Securities and Markets Authority (ESMA) greater powers over aspects of the euro clearing market, which settles business and trade conducted in the EU currency.
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The headline reform would give the regulators greater oversight of "systemically important" operations such as euro-denominated derivatives, with 75% of that business currently cleared in London.
Under the plans, the bodies would have the power to force such business back behind EU borders if deemed appropriate.
The two-tier approach would see less risky operations continue under current market regulation frameworks, though they would need to comply with any central bank instructions to maintain financial stability, such as demands for higher capital buffers.
Commission vice president, Valdis Dombrovskis, said: "The continued safety and stability of our financial system remains a key priority.
"As we face the departure of the largest EU financial centre, we need to make certain adjustments to our rules to ensure that our efforts remain on track."
The Commission's proposals fall short of what some in the City had feared would amount to strict euro clearing limits for financial centres outside the EU.
A report for the London Stock Exchange (LSE), which owns the London Clearing House, last year warned that the loss of all euro clearing work from the UK could cost 83,000 jobs from the City including lawyers and accountants.
The LSE had previously warned that any forced move of clearing operations to the EU could be highly damaging to its business.
Its arguments tallied with those of other UK interest groups which had warned of higher costs.
Chief executive of lobby group TheCityUK, Miles Celic, said: "While these proposals appear to fall short of the worst case scenario, the European Commission is holding back any real detail on when or how it might pull the trigger on a location policy."
Catherine McGuinness, policy chairman at the City of London Corporation, said: "In taking steps to shift power away from UK clearing houses, the EU could damage itself unnecessarily.
"Fragmentation of foreign exchange and interest rate trading across Europe and the rest of the world could lead to firms' costs increase by as much as 20%.
"We are also concerned that a location policy would impact across the international ecosystem in terms of market fragmentation and could increase systemic risk.
"The UK is the only place that can guarantee financial stability with the lowest possible cost implications.
"We do however welcome a structured and constructive discussion on these issues."