ECB ratchets up battle to seize London's euro clearing industry

Europe's tug-of-war battle with the UK over the City stepped up on Friday as its central bank called for more legal powers over London’s financial sector.

The latest twist comes on the anniversary of the historic Brexit vote amid a growing row over London’s role in Europe’s financial system after it leaves the European Union.

Around 98% of all euro-denominated derivatives are handled in London by UK-based clearing houses, which stand between buyers and sellers to settle trades and bear risk.

But the European Commission wants powers to move euro clearing away from London post-Brexit, as well as to force UK-based clearing houses to stick to EU rules and accept European Central Bank requirements.

The ECB today called for enhanced powers to supervise clearing activities, amending its articles to reflect responsibility for “clearing systems for financial instruments, within the Union and with other countries”.

The changes would give the ECB a “clear legal competence in the area of central clearing”, paving the way for a “significantly enhanced” role in authorising and supervising euro-clearers in “systemically important” third-party countries like London.

The ECB estimates €101 billion (£89 billion) of euro-denominated derivatives trading is cleared in the UK each day, more than 90% of the total, but the central bank is concerned Brexit could undermine its oversight.

ECB board member Benoît Cœuré said this week clearing activities might need to be moved from London to the EU if the post-Brexit framework reduces its powers. That could mean more than 80,000 jobs at risk over the next seven years if the City loses the business, according to an EY report last year.

Bank of England Governor Mark Carney pushed back against the commission this week, warning in his Mansion House speech that splitting the market for clearing euro-denominated derivatives would bump up costs for users and could even damage financial stability.