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ECB’s Cœuré argues in favour of European Commission rules on euro clearing

One of the European Central Bank’s top officials has put forth the case for the eurozone’s monetary guardian to take over the supervision of euro clearing, days after Brussels pushed for powers to force parts of London’s lucrative clearing business to relocate to the EU after Brexit.

The move comes after Bank of England governor Mark Carney made a push for clearing activity to remain in the UK, even after the country quits the EU.

Benoît Cœuré, a member of the ECB’s executive board backed the European Commission’s call for a new set of rules — now known as the European Market Infrastructure Regulation — to govern euro clearing, the vast majority of which takes place using UK-based clearing houses.

“We need to ensure that we can preserve a framework that ensures the safety and stability of the financial system when the UK is no longer a member of the EU,” said Mr Cœuré. “In this regard, we think the European Commission proposals to amend [the rules] are a step in the right direction.”

Mr Cœuré then went on to say that the Commission was right to tout a role for the ECB, as opposed to the Bank of England or national central banks within the EU, in supervising clearing houses given its role as the central issuer of euros.

“I welcome the the fact that the Commission has referred to the role that we should play as central bank of issue: we certainly need to play a strong role here.”

London-based clearing houses process around 90 per cent of the euro-denominated interest-rate swaps of euro-area banks and 40 per cent of their euro-denominated credit default swaps. They also cleared around half of euro-denominated repo business of euro-area banks, according to ECB calculations.

The EU proposes to designate the biggest overseas clearing houses as “systemic” but may also decide to force clearing business to relocate inside the EU if the concentration is deemed to pose excessive risks. Mr Cœuré’s comments, at the Global Financial Markets Association in Frankfurt, were the first from the central bank, which will also play a role in Europe’s determinations.

He acknowledged that the EU’s rules on recognising overseas clearing houses as “equivalent” were ill-equipped to deal with major systemic clearing houses operating from outside the EU. “If adopted, they would provide the supervisors and the relevant central banks of issue with the guarantees they need in order to monitor and address risks to the EU’s financial system.”

He said that forced relocation could be justified, but added: “It will be up to the Commission and the EU legislators to decide on the specific conditions for triggering such a requirement.” The ECB will issue a formal opinion on the Commission’s proposal in coming months, he added.

Earlier on Tuesday Mr Carney also described Brussels’s proposals as “welcome”. “Coming to an innovative, cooperative and reciprocal agreement on central clearing would promote competitive financing in the euro area and maintain the resilience of the UK and global financial systems,” he said.