U.K.'s Euro Clearing Business at Risk as ECB Requests More Powers
June 23 2017 - 5:09AM
Dow Jones News
By Paul Hannon in London and Emre Peker in Brussels
FRANKFURT--The European Central Bank lodged a formal request for
greater powers to supervise euro-denominated clearing, stepping up
a tug of war between European Union authorities and Britain over
the future of the lucrative business line after Brexit.
Britain's departure from the EU has rekindled a debate about
whether big U.K.-based clearing houses should decamp within the
bloc, given the importance of their activities for the stability of
eurozone financial markets.
The ECB said on Friday it had lodged a request with EU
authorities for changes to its statute that would allow it to
exercise "a clear legal competence in the area of central
clearing."
The move, a year after the Brexit vote, underlines the ECB's
eagerness to supervise a vast and lucrative business centered
beyond the eurozone's borders.
London-based clearinghouses, such as the London Stock Exchange's
LCH.Clearnet, clear around 90% of the euro-denominated interest
rate swaps of euro area banks, and 40% of their euro-denominated
credit default swaps, according to ECB estimates.
Those figures "should give you a sense of how relevant these
[clearinghouses] are for the stability of the euro," Benoît Coeuré,
who sits on the ECB's six-member executive board, said in a speech
this week. He argued that Britain's departure from the EU made it
"urgent" to review current supervisory arrangements.
The European Commission, the EU's executive arm, proposed a plan
last week that would force parts of London's clearing business to
relocate within the EU.
Mr. Coeuré welcomed those plans as "a step in the right
direction."
"We certainly need to play a strong role here," he said. The
current regime "relies to a large extent on local supervision, and
provides EU authorities with very limited tools for obtaining
information and taking action in the event of a crisis."
The ECB has long pushed for a greater role in overseeing
euro-denominated trades. It lost a legal battle over the issue two
years ago in the EU's second-highest court, but Britain's departure
from the EU has lent fresh impetus to its efforts.
The ECB's proposed amendments to its statutes would allow it "to
monitor and address risks associated with central clearing
activities that could affect the conduct of monetary policy, the
operation of payment systems and the stability of the euro," the
central bank said.
Still, Britain is expected to push back hard during the Brexit
negotiations, which kicked off this week in Brussels.
Responding to the EU's proposals, Mark Carney, governor of the
Bank of England, warned this week against fragmenting Europe's
clearing market.
"Fragmentation is in no one's economic interest," Mr. Carney
said. "Nor is it necessary for financial stability. Indeed it can
damage it."
But it is unclear how receptive the EU's 27 other members will
be to such arguments.
Speaking on the sidelines of a gathering of EU leaders in
Brussels on Friday, Austrian Chancellor Christian Kern argued it
was sensible to give the ECB greater powers over clearing given its
successful efforts to support the eurozone during the bloc's recent
crisis.
"The ECB has done a great job, an amazing job-- Mario Draghi has
saved Europe," Mr. Kern said, referring to the bank's president.
"Therefore, it makes sense to give them more means to do their
job."
Write to Paul Hannon at paul.hannon@wsj.com and Emre Peker at
emre.peker@wsj.com
(END) Dow Jones Newswires
June 23, 2017 04:54 ET (08:54 GMT)
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