ECB's Coeure Says EU Plan for Post-Brexit Clearing Positive Step

  • Executive Board member comments in speech in Frankfurt
  • Forcing clearing houses to move to EU could be ‘justified’

European Union plans to ensure the bloc has a leading role in supervising clearing houses after Brexit are a step in the right direction, according to European Central Bank Executive Board member Benoit Coeure.

The Commission’s proposals “would provide the supervisors and the relevant central banks of issue with the guarantees they need in order to monitor and address risks to the EU’s financial system,” Coeure said in a speech in Frankfurt on Tuesday. “I therefore welcome the fact that the Commission has referred to the role that we should play as central bank of issue: we certainly need to play a strong role here.”

Clearing houses, or central counterparties, turned into a political agenda item in the run-up to Brexit negotiations between the EU and the U.K. that started on Monday. While lawmakers including German Finance Minister Wolfgang Schaeuble have argued that the “major part” of euro clearing should happen inside the bloc, the financial industry has lobbied hard against a location policy.

About 75 percent of trading in euro-denominated interest-rate swaps takes place in Britain, according to Bank for International Settlements data from April 2016.

“What concerns us today in the context of Brexit is that the current EU regime regarding third-country CCPs was never designed to cope with major systemic CCPs operating from outside the EU,” Coeure said. “Indeed, this regime relies to a large extent on local supervision, and provides EU authorities with very limited tools for obtaining information and taking action in the event of a crisis.”

A key element of the EU proposals entails the ability to force the biggest foreign derivatives-clearing firms to set up shop in the bloc if they want to continue doing business there. ECB Governing Council member Jan Smets on Monday labeled the Commission’s draft “logical.”

Bank of England governor Mark Carney has warned that forcing clearing to take place outside of the U.K. would fragment markets and eventually lead to higher costs that will be passed on to European households and businesses.

Coeure said that requiring clearing houses, which stand between the two sides of a derivative wager, to establish themselves in the post-Brexit 27-nation bloc would be “justified in case EU authorities are unable to adequately control risks and fulfill their mandates through other means.” He added that that would be “just one of the tools available to EU authorities.”

“Ultimately, however, it will be up to the Commission and the EU legislators to decide on the specific conditions for triggering such a requirement, in the context of the forthcoming legislative discussions,” he said. “The ECB and other central banks of the EU are, of course, carefully examining the Commission’s proposal and the ECB will issue an opinion on it in the coming months.”

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