The Daily Update: Clearing Houses / London's Opportunity

It has long been known that the EU wants to force London-based clearing houses to relocate operations to the eurozone, however there has been a frustrating lack of progress for the EU and even evidence that some post-Brexit business flow has moved out of Europe altogether and across the pond. An EU Commission recently announced a working group to overcome technical and operational barriers to moving the euro-denominated derivative business to mainland Europe. Although the worry is that the challenges involved were so serious that individual eurozone countries might eventually break ranks and try to strike their own equivalence deals with London.

EU officials have been disappointed by flows of clearing business in interest rate swaps to U.S. centres. U.S. central counterparty clearing houses (CCP) enjoy regulatory equivalence already with EU clearing houses, whereas the UK is set to lose equivalence by the middle of 2022. Even worse, CDS clearing is showing signs of moving across the Atlantic from Paris, in what has been seen as a blow to the EU's long-term ambitions to make the euro a global currency.

The EU frustration comes as Jes Staley, Barclays PLC boss, urged London to use the UK’s divorce from the EU as an opportunity to ramp up its competitiveness to carve out a new place for itself on a global stage. In an interview with the BBC, he stated ‘I think what London needs to be focused on is not Frankfurt or Paris – it needs to be focused on New York and Singapore’ adding, ‘Brexit gives the UK the opportunity to define its own agenda, and in defining that agenda around financial services, staying competitive with other markets outside of Europe is what the government should be focused on, and I think is focused on’. He believes that while the U.K. should continue to have good relations with the EU, with its future laying on its ability to attract global capital and become a hub for areas like green investment.

There have been numerous doom merchants predicting an apocalyptic end to London’s status as Europe’s predominant financial centre, however Staley said so far, the impact (on Barclays at least) has been limited. ‘There are some jobs that are going to Europe, that otherwise would have been in the U.K., but it’s in the hundreds’ Staley said. ‘Some amount of capital has moved but London is still obviously the main centre for Barclays’.