ECB bids for power over euro clearing as Brexit debate heats up

(iStock)
(iStock)

Frankfurt - The European Central Bank (ECB) made a play for power over clearing of euro-denominated financial instrument, a key issue in Brexit talks between the European Union and the UK.

The Frankfurt-based ECB seeks to change its legal statute to be given a “clear legal competence” over clearing, it said in a statement on Friday. Specifically, it asked to change Article 22 of its statute to say:

“The ECB and national central banks may provide facilities, and the ECB may make regulations, to ensure efficient and sound clearing and payment systems, and clearing systems for financial instruments, within the Union and with other countries.”

The central bank said the new powers would include “a significantly enhanced role” for the ECB and eurozone central banks in supervising clearing houses, particularly systemically important ones located outside of the EU. The proposed amendment was sent to the European Parliament and to EU heads of state for adoption. The ECB said the EU Commission will issue an opinion on the recommendation.

Clearinghouses stand between the two sides of a derivative wager and hold collateral, known as margin, from both in case a member defaults. About 75% of trading in euro-denominated interest-rate swaps takes place in the UK, according to Bank for International Settlements data from April 2016.

The European Commission has proposed a two-tier system for non-EU clearinghouses. Smaller firms would carry on operating under existing rules, while those deemed systemically important to EU financial markets would face stricter scrutiny and, ultimately, could be forced to move clearing of EU derivatives inside the bloc.

This location requirement spurred warnings from the industry of skyrocketing costs and loss of jobs in London, which dominates much of the euro-clearing business. It has also helped to turn clearing into a political football in the EU-UK divorce negotiations.

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