Belfast Telegraph

EU oversight 'price worth accepting' to keep euro-clearing in London - McFarlane

Barclays chairman John McFarlane has said joint oversight of euro-clearing with the EU would be a "price worth accepting" to stop the multibillion-pound market leaving London as a result of Brexit.

Mr McFarlane, who is also chairman of financial services lobby group TheCityUK, reiterated fears that a splintered euro-clearing market would lead to higher costs for business.

"Businesses will always choose the offering with the best sustainable competitive advantage and the lowest capital and expense costs," he said in a speech at TheCityUK's annual conference in London on Thursday.

He added: "Therefore, fragmenting the current superior offering will inevitably lead to higher costs and capital and is unlikely to be attractive or desirable in practice, whatever the political preference.

"If the price of resolution to this is shared regulatory oversight, then it is a price worth accepting."

The European Commission last month put forward proposals which would impose stricter supervision of clearing houses by EU central banks and the European Securities and Markets Authority (Esma), and in some cases force bigger operations to move operations to the bloc.

The move is meant to tighten up and streamline the bloc's derivatives market, but brings London one step closer to losing its dominance over the euro-clearing market, which settles business and trade conducted in the EU currency.

The commission's proposals still need to be put to the European Parliament and the Council of the European Union, but have raised fears across the City.

London Stock Exchange boss Xavier Rolet warned in May that businesses would face 100 billion euros (£87.5 billion) in extra costs over five years if euro-clearing leaves the City, as the industry would lose out on efficiencies which he claimed saved customers 21 billion US dollars ( £16.4 billion in capital last year.

The LSE also said last autumn that up to 83,000 British clearing jobs could be lost over the next seven years if euro-denominated clearing leaves London.

Speaking to the Press Association, Mr McFarlane said the London euro-clearing market is currently "the most efficient in the world" but "will weaken" if businesses end up scattered across the EU.

"Why would you accept a substandard situation rather than the one that's working brilliantly today?" he said.

"And if the price is small - which is that the UK has to accept oversight of European and EU activities in these very large-scale activities, that are perfectly reasonable for the EU to want - what's the problem?

"It's a small price to pay relative to the lack of economics, and the massive increase in capital and costs for the alternative."

The boss of Britain's finance watchdog championed a similar agreement for joint oversight following the US-EU agreement on clearing house equivalence which was struck last year.

Financial Conduct Authority chief executive Andrew Bailey said the deal has been "ground-breaking" and has served as a success story for cross-border regulatory co-operation backed up by "effective joint supervisory oversight".

He said the UK will be able to strike similar agreements.

"I quite often have it put to me that the UK is a different case from other non-EU countries because it has large and nearby financial markets, and therefore there needs to be a more restrictive outcome for the UK.

"I don't accept this proposition. Our markets have developed together on the basis of the same rules."