BRUSSELS • The European Union plans to give itself powers to move euro clearing business away from London's financial sector to the EU after Brexit, and adopt a model closer to that operated by the United States, the bloc's executive said yesterday.
The financial industry has warned that forced "relocation" would split markets, bump up trading costs and diminish the status of the euro - as well as threaten thousands of jobs in the City of London.
The draft EU law would, as a last resort, force euro-denominated clearing business to shift from London if the volumes were deemed by Brussels to be systemically important.
The bulk of clearing in euro-denominated derivatives is performed in London and involves a third-party standing between two sides of a trade to ensure its smooth and safe completion.
The European Central Bank and euro zone policymakers have long wanted control over euro clearing, saying it is core to the single currency area's financial stability and would be outside the EU's regulatory sphere once Britain leaves in 2019.
Mr Valdis Dombrovskis, the European commissioner who proposed the draft law, said Brexit meant that "certain adjustments to our rules" were needed.
Under the draft law, if the European Securities and Markets Authority decides that a non-EU clearer is handling "systemically" important volumes of euro-denominated business, a system of "enhanced supervision" would be introduced.
This would mimic how US regulators already have direct oversight of London clearing houses that handle dollar-denominated instruments - though there is no provision for forcing through a relocation of a clearing house.
The draft law will need approval from EU states and the European Parliament.