Draghi Says Clearing Oversight After Brexit Is `Crucial' for ECB

  • ECB needs tools to ensure stability of euro, president says
  • Draghi speaks at European Parliament hearing in Brussels

The European Central Bank needs to maintain a firm grip in overseeing clearing of trades in euro-denominated financial instruments after Britain leaves the European Union, President Mario Draghi said on Monday.

“We need to have proper tools under EU law that we can ensure the stability of the common currency,” the ECB president told European Parliament lawmakers at the hearing in Brussels. For his institution it will be “crucial that it can at least preserve the current level of involvement over systemically important euro-denominated clearing activities, regardless of the framework adopted by the EU legislator and of the terms of the future EU-U.K. relation.”

Euro clearing has emerged as a bone of contention between the U.K. and the other 27 EU countries ahead of talks on Britain’s withdrawal from the bloc, with both Germany and France seeking to chip away at London’s dominance in the business. Bank of France Governor Francois Villeroy de Galhau said earlier in the day that clearing must take place in countries where supervision can be effective, adding that he didn’t see how that could be done in London after Brexit.

Draghi told lawmakers it will ultimately be up to them to decide on the type of regime that will be applied to “systemically important third-country” central counter-party clearing houses. He also welcomed measures proposed by the European Commission to protect against financial-stability risks posed by clearinghouses outside the bloc that play a “systemic role” in its markets.

For a QuickTake explainer on clearing, click here

The proposal could mean “enhanced” EU supervision of major U.K. firms, including London Stock Exchange Group Plc, that clear as much as 75 percent of euro-denominated interest-rate derivatives. The EU could also require clearing to take place inside the bloc.

Clearinghouses stand between the two sides of a derivative wager and hold collateral, known as margin, from both in case a member defaults.

Even before the June 2016 referendum the ECB had set its eye on requiring euro trades to be cleared in the territory of the single currency. The central bank’s campaign went all the way to the EU’s top court, which ruled against it.

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