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New EU proposal For Euro Clearing Not As Bad As Feared

Financial analysts state that the recently released EU proposal for euro clearing might result in greater control for Europe but has eased concerns that the €1trillion (£880 billion) a day business would need to be shifted fully to a European location.

The European Commission (EC) released a draft law earlier this week that focuses on euro-denominated transactions which are currently handled primarily by London-based clearing houses. The issue has become the subject of intense debate after the Brexit vote, with several European leaders insisting that euro trading must be handled out of an EU location after UK exits in 2019.

Under the draft law, those clearing houses which are deemed systemically important by the Paris-based regulator ESMA would need to submit to greater supervision which could include on-site inspections and more data exchanges. Though this is a common framework for U.S. regulators it is a new approach for the EU.

Sky News

Industry experts have noted that while the proposal gives the EU a lot of supervisory powers it has stopped short of forcing relocation though it still retains the power to do so. The EC document suggests that there might be a small number of clearing houses that would be labelled as too important for the system’s financial stability to remain outside the EU.

The proposal also details increased powers for the European Central Bank with regard to operational supervision for systemically important institutions which require prior approval to carry out changes to margin calculation. Several market participants have however pointed out that the draft law was very vague in terms of how the new rules will be implemented

In a statement Miles Celic, the chief executive of TheCityUK, a lobby group 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.

Celic further pointed out that such an approach furthered currency nationalism which would result in higher costs, market fragmentation and lesser competition.

A Treasury spokesman has responded to proposal stating that UK’s clearing house plays a vital role in the economies of both Britain and the EU, highlighting the fact that the issue of UK firms accessing the European market was a matter for upcoming negotiations. The European Commission (EC) released the proposal even as Brexit negotiations are expected to start in the next few days.


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