The EU fired a fresh salvo at the UK on Thursday (4 May), proposing fresh rules that would require a huge slice of London’s banking business to leave the UK after Brexit.
The new rules unveiled by European Commission Vice-President Valdis Dombrovskis would deny London the right to host banking “clearing houses” that deal in euros, the EU’s single currency.
Clearing houses are a key part of the financial system’s plumbing, with trillions of euros being handled every year, mostly out of London.
Dombrovskis said the EU will officially publish its new proposals in June, with Britain accepting Brussels oversight of euro-clearing in London the only other option on the table.
“This is not a new issue, but of course in a context of Brexit we see the situation is changing,” Dombrovskis told reporters.
“Because the bulk of euro-denominated derivatives are cleared in the UK … we need to assess what implications it has for financial stability,” he said.
The issue of whether euro clearing houses can remain in the British capital is set to be one of the most contentious issues when the UK negotiates its future trade relationship with the EU after its departure.
Britain has jealously guarded dominance of the clearing house sector in Europe and won an EU court decision in 2015 against the European Central Bank in order to keep hosting the euro deals.
London lobbyists argued against the rules, arguing that only Wall Street or Asia would benefit.
“A forced re-location of euro-clearing would lead to disruption, uncertainty and fragmentation of the market,” said Miles Celic, Chief Executive of the TheCityUK.
Forcing a move out of London, “would ultimately be detrimental” and “is in no one’s interest,” he added.
The announcement by Dombrovskis came as part of a package of measures unveiled on Thursday to ease trade in the controversial derivatives sector.
The UK's vote to leave the EU has sparked questions over its role as Europe’s financial capital, with cities like Frankfurt, home of the European Central Bank, and Dublin also hoping to cash in on any move out of London by financial companies.
The issue of whether euro clearing houses can remain in the British capital is set to be one of the most contentious issues as Britain seeks to negotiate its future trade relationship with the EU after its departure.
French President François Hollande warned that Britain’s City of London financial district would have to give up its role in processing euro currency transactions after it leaves the European Union.
Britain has jealously guarded its status and won a recent EU court decision against the European Central Bank in order to keep hosting the euro deals. The ECB wants such trades to be cleared in one of the 19 eurozone countries.