LONDON (Reuters) - Britain could face limits on the number of euro financial transactions it handles unless it allows European Union supervision of clearing houses in London after Brexit, EU lawmakers said on Thursday.
Britain is Europe’s biggest financial centre, trading and clearing a large number of euros and euro-denominated transactions such as derivatives, supporting thousands of jobs.
After its departure from the EU, Brussels would have no direct say over how risks to EU financial stability from such trading is handled.
“This is about what is the amount of financial risks that you allow somebody else outside the EU to manage. There are limits to what you can allow,” Olivier Guersent, a top official at the European Commission, told the European Parliament’s economic affairs committee on Thursday.
He was responding to concerns from committee members about how the bloc’s system of “equivalence” will work after Britain leaves the EU.
Equivalence refers to the EU granting market access for a non-EU firm if it complies with rules similar to those in the bloc, and Guersent expects banks based in Britain to apply for it.
The lawmakers, who will have a veto over a future EU trade deal with Britain, said they had serious concerns about London still dominating euro-denominated trading after Brexit.
Burkhard Balz, a centre-right German lawmaker, doubted that equivalence offered enough guarantees to ensure “high quality” supervision of euro clearing conducted outside the EU.
“We have serious concerns about the future of these transactions once the Brexit is implemented, and current legislation needs to be adjusted in order to ensure that supervision of euro derivatives falls under the responsibility of EU institutions,” Balz said.
A German centre-left lawmaker, Jakob von Weizsaecker called for a “sliding scale” of measures to stop financial stability risks entering the bloc from outside, with “repatriation” of trading activities as a last resort.
Equivalence was never designed for “systemically important volumes” a Britain outside the EU would represent, another lawmaker said.
The concerns echo comments from the European Central Bank, whose previous attempt to force large swathes of euro-denominated clearing to move from Britain to the euro zone, failed.
Sabine Lautenschlaeger, a top ECB official said this month that keeping euro clearing in London after Brexit would depend on whether the new UK-EU trading terms kept the central bank involved in supervision.
Steven Maijoor, chairman of the EU’s European Securities and Markets Authority, said there was a need to beef up checks of whether non-EU regulators and financial firms continued to meet equivalence requirements.
Under the current system there were clear limits to how much the EU could mitigate risks from euro clearing from outside the bloc, Maijoor added.
Reporting by Huw Jones; Editing by Mark Potter