EU could demand euro clearing houses move to bloc from London
Brexit has put London's position as the global centre for euro clearing at risk after the European Union (EU) confirmed it could force City clearing houses to relocate to the bloc.
The European Commission (EC) outlined fresh proposals on Thursday meant to tighten up and streamline the derivatives market, but which also threaten London's dominance over the multi-trillion pound euro clearing market after Brexit.
Officials said "EU institutions and member states" have raised concerns over the fact up to "75% of euro-denominated interest rate derivatives are cleared in the UK", which will no longer be supervised by EU regulators once it leaves the bloc.
"The bulk of EU-denominated derivatives are cleared in the UK and therefore we need to assess what implications it has for financial stability," EC vice president Valdis Dombrovskis said during a press conference.
EU officials are now set to embark on an "impact assessment" and will reveal "further legislative proposals" in June.
It brings London one step closer to losing its dominance over the euro clearing market, which settles business and trade conducted in the EU currency.
An independent report conducted by EY for the London Stock Exchange last autumn said up to 83,000 clearing jobs could be lost over the next seven years if euro-denominated clearing leaves London.
Those job losses would create a domino effect on other financial sectors, impacting up to 232,000 jobs across the UK, the report said.
Commenting on the European Commission's proposals, Miles Celic, chief executive of Square Mile lobby group TheCityUK, said clearing is concentrated in major cities like London because it has the "scale, expertise and infrastructure" to keep costs as low as possible.
He added: "A forced re-location of euro-clearing would lead to disruption, uncertainty and fragmentation of the market.
"A potentially less liquid and less competitive EU market would result in higher costs for European savers and investors.
"This would ultimately be detrimental to people and businesses in Britain and in Europe. This is in no-one's interest and is entirely avoidable."
Chancellor Philip Hammond also aired concerns about potential economic disruptions in both the UK and EU.
He said: "We approach the Brexit negotiations with a spirit of good will and we will consider any EU proposal before we leave on its merits.
"We should be careful of any proposals which might disrupt growth, raise the cost of investment in Europe and the UK or weaken financial stability.
"London is the world's number one financial centre with high standards of financial supervision, including long-standing co-operation with EU institutions.
"This benefits the entire continent. We trust everyone in the negotiations will see the value in not undermining that."