London losing a €930 billion daily business after Brexit would massively hurt Europe

Lianna Brinded
A snowstorm in Canary Wharf, London's financial district

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London losing the business of euro clearing — an industry worth €930 billion (£792 billion, $995 billion) daily — after Brexit would massively hurt the rest of Europe as well as Britain.

That is according to Miles Celic of TheCityUK, a UK financial and professional services lobby group.

Celic said in an emailed statement on Thursday: "Clearing is an activity where economies of scale make a big difference to the cost of doing business. This is one of the major reasons why clearing has become concentrated in major international centres like London. It has the scale, expertise and infrastructure to keep costs as low as possible."

Clearing is the process by which trades between banks and other financial institutions are settled. Euro clearing is the settlement of trades done in euros.

London is the international centre of euro clearing but the EU has repeatedly signalled that it must be moved out of the UK capital after Brexit. France has been particularly vocal in calling for relocation.

Celic was responding to new Brussels' proposals that make it even more likely that euro clearing will be forced out of London. The European Commission said in a paper published on Thursday that central counterparties, the clearing houses that sit in between two trading institutions, may need "enhanced supervision at EU level and/or location requirements." Location requirements would likely mean they must be located within the EU.

Celic says: "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."

The acceptance of English law and widespread use of English language has made London a hub for clearing globally. It handles more than 70% of the daily euro clearing business, equivalent to around €930 billion of trades per day, according to a House of Lords report from 2016.

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

Clearinghouses in London such as LCH and ICE Clear Europe manage credit risk, acting as a middle-man in swaps and derivatives trades to guarantee the contract in the event that one of the parties involved in the trade goes bust. They are meant to stop a collapsing domino effect if one company goes under.

It looks increasingly likely that Britain will lose its ability to host euro clearing when it leaves the EU on March 29, 2019. Prime Minister Theresa May is pushing for a "hard Brexit" — Britain leaving the EU's Single Market in exchange for total control of immigration.

European policymakers have argued that euro clearing should take place within the euro area. Britain has repeatedly had to defend its right to clear euro trades, given that it does not have the euro. If it is not even in the Single Market, it makes it even more difficult to make the case for looking after euro clearing.

If Britain is stripped of its clearing rights, then around 100,000 positions could be lost, London Stock Exchange head Xavier Rolet said six months ago. An earlier EY report estimated that around 83,000 people could lose their jobs over the course of the next seven years if clearing completely shifted out of the City.

In April, Manfred Weber, a prominent ally of German Chancellor Angela Merkel, said that London should be stripped of euro clearing post-Brexit. France’s finance minister Michel Sapin also said last month that it is not possible for the City to continue the lucrative clearing business after Brexit.

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