Further reason why Brexit will rock the City of London...
London's standing as a global financial powerhouse could be set to take another hit – paving the way for potential Dublin investment in the process – if new European Union proposals come to pass.
European Commission vice-president Valdis Dombrovskis is expected to unveil a draft law which would prevent a post-Brexit London from hosting financial market clearing houses that deal with trillions of euro annually.
It would require the clearing of all euro-denominated financial payments and instruments to be carried out within the eurozone.
The UK has strongly defended its leadership in this activity in the past and won an EU court decision two years ago against a prior proposal to repatriate this activity on the part of the European Central Bank.
The latest politically-charged proposals have sparked industry fears of skyrocketing costs and London job losses. It comes as part of an overhaul of the bloc's market-infrastructure law.
Making the case for London remaining on as the euro clearing house hub with minimal interference, the Financial Times wrote last month:
"The idea of state-based control of central clearing should alarm the markets.
"It is quite different from a reasonable request for information-sharing between UK clearing houses and EU regulators after Brexit. It instead represents a serious attempt at a 'managed' economic treatment of eurozone instruments."
At present, UK firms including London Stock Exchange Group Plc clear as much as 75% of euro-denominated interest-rate derivatives. Losing that business could result in a £80 billion hit to the British economy.
Under the new law, the Paris-based European Securities and Markets Authority would determine which clearing houses were significant enough to euro activity to require direct supervision.
Bloomberg reports that, ahead of the commencement of "divorce negotiations" kicking off on June 19th, euro clearing has been turned into a "political football".
Guntram Wolff, director of the Bruegel think tank, believes it is evident the push to "bring home" clearing will be one of the EU's demands in negotiations:
“Of course, the location policy is a negotiating instrument. You can apply pressure with this. The question is: Why would the UK agree to extraterritorial oversight? They haven’t done it so far."