Brussels has been slammed by Europe’s own top banking group for trying to force banks in the bloc to close clearing business in the City in an attempted post-Brexit power grab by the EU.
The European Commission’s plans to slap banks that do not shift clearing business in London to the Continent with penalties will trigger “serious market disruption,” the European Banking Federation (EBF) warned yesterday.
London’s clearing system is integral to the functioning of the European financial industry, with hundreds of trillions of pounds passing through the City.
Blocking off European banks’ access to it could lead to long delays in financial transactions and raise the cost of trading for firms on the Continent.
Clearing houses act as brokers between two parties to ensure financial services products exchange hands smoothly.
Last week, European commissioner for financial services, Mairead McGuinness, tried to speed up the process of banks reducing their “excessive dependence” on London clearing houses, she said.
The Commission granted investors from the EU access to clearing houses in the US in a bid to shut off access to London’s clearing industry quicker.
The EU has promised to wait until 2025 before outlawing banks’ use of the City’s clearing houses.
“These decisions are in the interest of the EU – we want our capital markets to be better integrated with other international markets,” McGuinness said at the time.
Ana Botin, chief executive of high street Spanish lender Santander, warned clients ““will move their entire capital markets business (not only the clearing business) to non-EU institutions” if the EU continues with its heavy handed relocation plans.
“Any forced relocation strategy or other coercive measures will not achieve, and would likely undermine, the objective of a competitive and resilient EU clearing” system, she added.
Brussels and London have yet to reach an agreement on financial services equivalence arrangements after Brexit.