Moving euro clearing away from London could send shockwaves across the global financial community, forcing up transaction costs and causing capital requirements headaches, one of world banking's most influential voices has warned.
Speaking at TheCityUK annual dinner at London's Plaisterers’ Hall, chairman John McFarlane said Brexit in March 2019 is a reality that needs to be accepted and the UK will not be able to retain all the benefits of being a full member of the EU.
While he accepted some activities currently performed in the UK may need to be moved to the EU, moving others could be detrimental not just to Britain but worldwide.
"Going forward we do face a number of related issues," McFarlane said at the dinner, which was attended by ministers including chancellor Philip Hammond, members of the Lords and City bigwigs.
"There is a tangible threat of a cliff-edge in a number of areas and no individual firm can accept the possibility of this."
He continued: "Ensuring contract continuity post-Brexit is critical, as is the grandfathering of existing contracts. It’s in everyone’s interest not to interfere with historical contracts otherwise it could necessitate the need to re-paper millions of historical transactions, particularly derivatives, hedging and insurance contracts, for no material purpose.
Also retaining the economic and capital benefit of netting of transactions is critical. Any move to transfer euro and EU transactions from a cross-currency netting or clearing system into a separate EU entity, will inevitably be less economic - transaction costs will rise, as will margin and capital requirements.
It could even place at risk the economic viability of continuing to provide such services, other than in London or New York
The comments come after officials in Frankfurt earlier disputed estimates that moving euro clearing away from London could cost investors €100bn (£88bn) – a figure originally put forward by the now ousted London Stock Exchange boss Xavier Rolet earlier this year.
A report by German think-tank the Centre for Financial Studies claimed the cost of relocating to the continent was as little as $3.2bn.