The City of London is a living, dynamic business centre made up of a huge number of industries, from banks, to legal services, to management consultants, to pension funds. This cluster of services is what makes it the world’s leading financial centre.
These services have grouped together here because they are all interdependent, and the sum of these parts is greater than each sector individually. But concern comes if one of these essential building blocks to the City’s success is threatened with removal from the whole.
New York is the world leader in bonds and debt. Hong Kong is the top global centre for equities. London’s unique selling point is our city’s dominance in foreign exchange. Nearly 40 per cent of all foreign currency trading happens in London. We clear more dollars than New York. We trade more euros than the rest of the Eurozone combined.
Around €1 trillion are exchanged in the UK every day. In terms of interest rate derivatives, including swaps, options and other products, the UK is a clear market leader in euro-denominated transactions, with a daily turnover of €927bn.
So it’s not surprising that, with that volume, a mainland Europe eager to attract business has its eye on a piece of this cake.
That would, however, be a mistake. Clearing is centred in one place for reasons of efficiency, cost, and also – importantly – risk management.
Leading Square Mile figures, such as the London Stock Exchange’s Xavier Rolet, have been saying the idea of countries dictating where central clearing should take place is a worry for the markets. The idea of trying to force the relocation of the clearing industry based here in the UK is a prime example of a policy where the politics is trumping the economics.
Christopher Giancarlo, the acting chairman of the US Commodity Futures Trading Commission, also warned EU officials to tread carefully, saying that supervision of central counterparty clearing houses undoubtedly will inform the evolution of US regulatory policy. It was a timely comment and we discussed this together when I met him and some of his staff during a trip to Washington DC in April.
All the evidence points one way: the mass uprooting and offshoring of part of the foreign exchange industry – of clearing of transactions in one currency – would not only be vastly complicated, but also vastly damaging, and potentially destabilising.
We want to keep euro clearing in London. Not because of some patriotic logic, but because we are the global centre for clearing in multiple currencies. We have the global scale – based on handling over 70 per cent of the daily euro clearing business – to make foreign exchange affordable and efficient for companies across Europe.
We have the right infrastructure and regulators to ensure clearing is done in a responsible manner. Crucially, we have the people that have made this global industry the success that it is in London.
Forcibly removing the industry from the UK would not be in the interests of the European – nor, indeed, the global financial system. I hope that European leaders realise this before any damage is done to the European or British economies.