German minister confident of winning euro clearing power from "offshore" London after Brexit

 
William Turvill
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German Greens Party Convention
Tarek Al-Wazir would have been one of the Hessian politicians responsible for approving the London Stock Exchange-Deutsche Boerse deal, which now appears to have collapsed (Source: Getty)

A German economics minister has spoken confidently of winning euro clearing power from London after Brexit.

Tarek Al-Wazir, a minister for the state of Hesse, said he expects Frankfurt, which is in his district, to be among the beneficiaries.

Read more: Clear off: City of London steps up fight to retain euro clearing

“It is hard to imagine that most business in euros will be booked in London after Brexit. Europe needs access if anything goes wrong,” he told Reuters in an interview.

“From the [European Central Bank’s] point of view, London is offshore after Brexit.”

He added: “You can expect parts of the clearing business to be spread across many continental locations. I'm confident that Frankfurt can attract part of London's euro clearing business.”

Several high-profile City figures and financial experts have warned EU nations against making a grab for euro clearing.

Craig Pirrong, a finance professor at the University of Houston and clearing expert, said the process of wrenching the activity from London would be “very complicated”.

“It’s like trying to separate Siamese twins joined at the head or something like that,” he told City A.M.

All these deals pretty much are going to be done under UK law. So how are you going to have the clearing in Europe and then these deals done in the UK – are they basically going to have to be re-papered, redone?

There are just a lot of complications just in terms of the legalities of the contracts. You’re not just moving where the book-keeping is done, you’re also moving the jurisdiction of the law… and that’s not an easy thing to do when you’re talking about the mass of contracts involved here, and the amount of money involved.

He added that, with clearing more spread across the continent, costs for customers would be increased.

Read more: Maintaining London’s euro-clearing crown is vital to EU as well as the UK

Sir Jon Cunliffe, deputy governor of the Bank of England, last month hit out at “currency nationalism”, saying: “Such a policy if applied by all jurisdictions is in the end likely to be a road to the splintering of this global infrastructure – and to further fragmentation of the global capital market – rather than the route to the sound and efficient management of risk.”

He also said a forced move out of London could push up transaction costs for clearing house customers.

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