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ECB pushes to gain control of euro clearing business after Brexit

The European Central Bank has made its strongest push yet to gain control of oversight of the lucrative business of euro clearing post-Brexit, with its top ranking governing council calling for a change to the bank’s statute to give it more legal powers to take on the role.

Oversight of clearing has emerged as an important battleground in Brexit negotiations with the UK authorities, who fear London firms operating in the area will be forced to quit the City and move to the continent once ties with the EU are broken.

The bulk of euro-denominated derivatives are now cleared in London, with the Bank of England currently responsible for oversight. However, the ECB has long been unhappy with the status quo and took its case to the European Court of Justice, arguing that the settlement of euro trades outside the EU left the single currency area exposed to a big financial stability risk. The ECB lost its case.

The euro-area’s central bank said in a statement on Friday: “The amendments will allow the Eurosystem to monitor and address risks associated with central clearing activities that could affect the conduct of monetary policy, the operation of payment systems and the stability of the euro.”

The calls to change the statute comes after the European Commission said last week the Brussels should have powers to force clearers to relocate to the single currency area. The Commission plans to review the European Market Infrastructure Regulation, which covers the oversight of clearers.

If the bank’s proposed change is accepted by the European Parliament, the revised Article, number 22 in the ECB’s statute, would read: “The ECB and national central banks may provide facilities, and the ECB may make regulations, to ensure efficient and sound clearing and payment systems, and clearing systems for financial instruments, within the Union and with other countries.”

UK-based firms such as LCH now clear around three quarters of euro-denominated derivatives — a process which involves standing between two counterparties to protect one against the risk of default by another. The business area has become more important following the global financial crisis, with clearing of derivatives is seen as an important way to address the risk of failure by a counterparty.

The UK is keen for business to remain in London. Mark Carney, the governor of the Bank of England, earlier this week dismissed arguments that euro clearing outside the EU posed a threat to stability.