LONDON (Reuters) - Chancellor Philip Hammond warned on Thursday of potential risks if the European Union moves the clearing of euro-denominated securities like derivatives and bonds to within the euro zone after Brexit.
“We approach the Brexit negotiations with a spirit of goodwill and we will consider any EU proposal before we leave on its merits,” Hammond said. “But we should be careful of any proposals which might disrupt growth, raise the cost of investment in Europe and the UK or weaken financial stability.”
The London Stock Exchange’s (LSE.L) LCH clearing house clears most euro-denominated trades, but this activity will be outside the bloc’s legal framework after Brexit.
Earlier on Thursday, European Commission Vice President Valdis Dombrovskis announced an assessment of new options for the industry - closer supervision of clearing houses outside the EU and requiring those who clear large amounts of euro-denominated securities to be located inside the bloc.
Dombrovskis said the Commission was not jumping to conclusions about the best way forward.
A shift in euro clearing from London to the continent, which the European Central Bank has pushed for, could mean the loss of thousands of jobs for Britain.
TheCityUK, which promotes Britain as a financial centre, said a forced re-location of euro-clearing would lead to disruption, uncertainty and fragmentation of the market.
“A potentially less liquid, and less competitive EU market would result in higher costs for European savers and investors,” the lobby group’s chief executive, Miles Celic, said in a statement.
Roger Storm, head of clearing at Six Securities Services, the Swiss market operator, said if Brussels is intent on taking back euro clearing, issues such as competition, licensing and access rights will all be secondary.
“In some senses, there is a strong argument for them to do so,” Storm said.
“Many will argue that it’s unreasonable to expect the ECB to relinquish influence and control if a clearer in another market default – they need to have the control of the gas pedal and brakes of their car.”
The treasurer of a major European bank said he anticipated fierce competition from euro zone financial centres such as Frankfurt, Luxembourg and Paris for London’s euro clearing business.
“It’s going to be a huge fight,” he said on the sidelines of a financial conference in Luxembourg.
Additional reporting by Jamie McGeever in Luxembourg and Huw Jones in London; writing by William Schomberg and Huw Jones; editing by Larry King