The European Union (EU) is seeking to tighten its grip on London’s euro-clearing market, a business worth billions of euros. The European Commission, the EU’s executive arm, has proposed that clearing houses, which stand between trading parties and guarantee transactions, should be more strictly regulated if they are of systemic importance to the EU’s financial system. If approved, the proposal could force major clearing houses to relocate within the EU.
London is home to some of the world’s largest clearing houses, including LCH.Clearnet, which clears nearly €1tn of euro-denominated contracts daily. The European Central Bank has previously attempted to repatriate euro-clearing, but was thwarted by the EU’s General Court.
The Commission’s proposal has been criticised by the UK government and the Bank of England, who argue that it could increase costs for companies and destabilise markets. The UK has threatened to retaliate with tit-for-tat regulation.
The proposal is part of a broader set of financial reforms that the EU is pursuing in response to Brexit. It marks a significant escalation in the EU’s efforts to exert control over London’s financial services industry.
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