London is in strong position to keep euro-clearing

Subject

London euro-clearing post-Brexit.

Significance

The European Commission released draft legislation on June 13 proposing the European Securities and Markets Authority (ESMA) supervise non-EU-based clearing houses that are deemed systemically important, in effect giving the EU the power to insist euro-clearing remains in the bloc after Brexit. On June 23, the ECB proposed a “significantly enhanced” role for the ECB in euro-clearing. Forcing euro-clearing into the euro-area shows the bloc puts protecting its own interests before globalisation, also suggesting that the post-Brexit EU may increasingly prioritise political imperatives over economic ones, and become less open to international business.

Impacts

• The draft law will affect New York and Tokyo, which will gain from London if European finance becomes more fragmented.
• If passed, the law will give the ESMA strong powers to determine the geography of EU finance.
• Such political direction could cause tensions as not all EU member states are likely to welcome it.