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The UK could lose its cherished clearing markets during Brexit discussions

The EU set to target London's prize assets

Brexit negotiations between the United Kingdom and European Union are set to begin imminently with the EU set to go after one of London's prize assets, its Euro-clearing market. 

 

The clearing houses serve as an intermediary between both buyers and sellers of financial assets and although they are currently based in London, the European Commission have called for "systematically important" houses to be relocated to the Brussels bloc. 

 

A European Commission statement claimed, "With the departure of the United Kingdom from the EU, these risks will be particularly exacerbated, as a substantial volume of derivatives transactions denominated in Euro or other EU Member States' currencies are currently cleared via central counterparties (CCP) located in the UK. 

 

The EC continued by warning that a clearing house failure would risk "major consequences for the stability of the financial system." The EC added that the current regulatory framework has "demonstrated certain shortcomings as regards ongoing supervision in third countries, meaning that EU authorities may not become aware of new or growing risks to the EU financial system. Furthermore, the actions of a third-country CCP can have an impact on the financial stability of the EU and its Member States and therefore raise significant concerns for EU central banks." 

 
The City currently clears around €850bn each day and Xavier Roletchief executive of the London Stock Exchange, has warned that not only will a relocation cause thousands of job losses within London  but it could also hit European issuers, pension funds and investors. 

 

Valdis Dombrovskis, the EU's Vice President, hit back by claiming, "The continued safety and stability of our financial system remains a key priority. As we face the departure of the largest EU financial centre, we need to make certain adjustments to our rules to ensure that our efforts remain on track." 

 

This is not the first time that London's clearing house has come under threat, the European Central Bank suggested that Euro clearing should be conducted within the eurozone back in 2011 but was overruled by the European Court of Justice. The ruling agreed with the UK's argument that clearing in the bloc would discriminate against EU members that didn't use the single currency. 

 

It is feared that Brexit could now weaken the UK's position and force the clearing houses to relocate, a move that would be disastrous for the struggling Pound.

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