Bank of England governor slams EU raid on City bank trades as ‘very serious escalation’ and vows to ‘resist very firmly’
THE Bank of England governor has slammed a European Union raid on London bank trades as a “very serious escalation”.
The Bank‘s boss Andrew Bailey told MPs on the Treasury Select Committee that pressure from Europe on banks to shift their so-called clearing activity out of London was of “dubious legality”.
His comments come after reports suggest Brussels has been ordering major banks to explain why they are not shifting euro derivatives trading out of London.
The questionnaire sent to lenders has been seen as a bid by the EU to take control of the euro clearing market, worth a staggering 735 trillion euro (£658 trillion) a year.
London is the leader in clearing, with the London Stock Exchange’s LCH business dominating the market.
Although a low-margin business, clearing is critical for global financial markets
It ensures that trillions of dollars in swap trades are completed safely.
London’s clearing houses help make it the world’s biggest centre for trading derivatives, adding to its attractiveness as a base for global banks.
Mr Bailey said to move clearing over to Europe would require about 25 per cent of the market to shift there, but that would still not be viable and would likely see the EU look to grab the remaining 75 per cent.
“So it becomes a question about how could it get the other 75 per cent?” he said.
“That would require something very controversial.”
He said that if the EU was using regulatory pressure on firms to shift activity out of London, it would be “highly controversial and that would be something that we would have to, and want to, resist very firmly”.
He added the move of clearing to the EU would be a potential financial stability concern in the UK and said it appeared to have nothing to do with securing “equivalence” on regulations.
The Treasury is currently taking the lead on the issue, with support from the Bank, according to Mr Bailey.
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Britain and the EU are working to secure a memorandum of understanding that should create a framework for financial regulation between the two in the hope it will grant London more access following Brexit.
But negotiations appear to have been fraught, with Mr Bailey recently warning in his Mansion House speech that the UK will not be forced to follow EU banking regulations and must be allowed to set its own independent rules.
He said at the time it would be “unrealistic, dangerous and inconsistent with practice” warning the UK is unlikely to agree to EU demands that rules are followed for several years.
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