The Bank of England has warned against pulling euro clearing away from London because of “currency nationalism” and said it plans to “up its game” to press the UK’s advantage in overseeing a complicated but lucrative market.
Sir Jon Cunliffe, deputy governor for financial stability, said that in the coming year the central bank was looking at beefing up staffing, training sector specialists and charging a supervisory levy on the clearing houses and payment providers it oversees.
The moves follow recommendations made in a report published on Wednesday by the central bank’s internal watchdog, the Independent Evaluation Office.
The IEO said the BoE is a world leader among supervisors of clearing, payment services, exchanges and other parts of the plumbing that underpins financial services but that there was “scope to continue to build on these gains”.
Sir Jon said the BoE is preparing to charge a separate levy for supervision. Currently the bank is financed via a levy on banks.
“The industry is developing pretty fast. and all the products have to be authorised,” he said. “That is increasing the demands on us. We made clear last year when we brought in the new supervisory model that our priority is the supervision but firms have an expectation that we can authorise reasonably quickly.”
He said financial stability was not imperilled if trades denominated in a particular currency were directed through central clearing houses outside that currency’s home turf.
European politicians and even some European central bankers have vied for London to be stripped of euro clearing. Last month Benoit Coeuré, a member of the European Central Bank’s board, expressed concern that maintaining the current approach to euro clearing would be “challenging” from a financial-stability perspective.
The issue of euro clearing has long been a thorn in the side of London relations with the European Union. The ECB has previously and unsuccessfully challenging the current arrangement in Europe’s courts.
In addition, Sir Jon said the BoE will focus on operational resilience of critical market infrastructure, particularly to prevent a cyber attack. It is also expected to review the impact on financial stability of the potential €29bn merger of the London Stock Exchange Group and Deutsche Börse, which is currently before European antritrust authorities in Brussels.
He said the BoE would work on developing closer links between its market stability unit and the Prudential Regulation Authority, which supervises lenders and insurers.
“The [IEO] report says we’ve kept pace up to now, if we need to find more people within the bank we’ll find them. The other issue is that these things are technically very different to banks. We have a large number of ex-bank supervisors in this world now but it’s always been quite a small, narrow set of expertise in the industry and as this world develops, we’re going to have more expertise. Some of that we’re going to have to develop ourselves because there just aren’t the people out there.”
Along with staffing and funding, the IEO report said the BoE should explain more fully what its objectives were in relation to financial market infrastructure, and be more open to independent challenge. The BoE said it welcomed the recommendations and was “committed” to implementing them.