Mario Draghi calls for end to clearing dispute before Brexit
Mario Draghi today moved to put the spotlight back onto London’s multi-trillion euro clearing industry, urging the EU to push through a new approach to regulation before Brexit.
The European Central Bank (ECB) president demanded a central role in the supervision of clearing central counterparties (CCPs), yet struck a more conciliatory tone than some European politicians who want the industry to be uprooted from London.
Draghi, speaking to the European Parliament, made it clear that he sees Brexit as a reason for the EU to speed up the passage of regulations which will give the ECB far-reaching powers over clearing houses in London and beyond.
Read more: Deutsche Boerse's new boss eyes quarter of euro clearing after Brexit
The ECB boss said he wanted to “stress the crucial importance of finalising the adoption of key pieces of EU legislation, such as Emir II, well in advance of Brexit, in order to be prepared for all possible contingencies, including a no-deal scenario.”
The latest iteration of the European Market Infrastructure Regulation (Emir II) would allow the ECB to directly regulate third-country clearing houses, with the possibility of stricter rules or even forcing systemically important firms to move their operations to the EU.
The rules are currently being discussed in the European Parliament, and could pass as soon as the end of the year.
Draghi took a softer line on the threat of relocation to the EU, but the possibility nevertheless remains, according to Chris Arnold, a partner at law firm Mayer Brown.
Read more: Moving euro clearing away from London threatens global financial services
Arnold said the ECB boss delivered “a lot of warm words about respecting the existing supervisory regime and ensuring cooperation across borders, but there is some stick here as well, particularly for CCPs operating outside the EU.”
European policymakers have balked at the idea of the massive notional volumes of derivatives cleared every day in London remaining outside of their control post-Brexit.
Companies use derivatives to hedge against the risk of a whole host of market movements, such as changes in interest rates or foreign exchange, with the bulk of euro-denominated clearing currently taking place in the UK.
The three major clearing houses – led by the London Stock Exchange Group’s LCH – clear around €1 trillion (£880bn) of euro trades every day, according to European think tank Bruegel. Deutsche Boerse boss Theodor Weimer last week said he would use Brexit to target a quarter of market.
Proponents of moving clearing to the EU say it would aid financial stability by allowing regulators to intervene in a crisis. However, the move has faced fierce criticism from US and British regulators who argue it would raise costs for European firms who lose the benefits of netting their exposures in a single venue. Chancellor Philip Hammond last year warned against accepting “protectionist agendas disguised as arguments about financial stability”.
Read more: LSE chief: ECB's new euro clearing rules will cost investors €20bn
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