(Adds lawmaker comment)
By Huw Jones
LONDON Feb 22 Bank of England Deputy Governor
Jon Cunliffe warned on Wednesday that requiring financial
instruments to be cleared in a country that uses the currency in
which they are denominated would bump up costs and splinter
Cunliffe said the clearing of a single pool of
multi-currency instruments, as done by LCH clearing house
in London, allowed the offsetting of positions to boost
efficiency which "currency nationalism" would undermine.
"This reduces the costs of central clearing - costs that are
ultimately borne by the real economy - as well as allowing a
more efficient and effective management of the risks that brings
significant global financial stability benefits," Cunliffe said
in a speech in London.
"Requiring each of these instruments to be cleared in the
jurisdiction of the currency in which they are denominated would
simply render multi-currency central-clearing impossible."
Policymakers in the euro zone have said that clearing of
euro-denominated derivatives, which LCH dominates, should be
moved to the single currency area after Britain leaves the EU.
The European Central Bank failed in an attempt to move large
chunks of euro denominated clearing from London to the euro
zone, but is expected to try again after Brexit.
The Bank of England regulates some of the world's biggest
clearing houses, such as LCH and ICE Clear Europe.
"In central clearing, in settlement, in payments if we wish
to maintain the infrastructure to sustain an open and integrated
global capital market, we will need to build upon the
arrangements we have developed for supervisory cooperation and
co-ordination," Cunliffe said.
He said "currency nationalism is not a necessary condition
for either financial or monetary stability, as is demonstrated
by international experience over recent decades".
If all jurisdictions followed such a policy, it would likely
splinter global markets, rather than be a route to the sound and
efficient management of risk, Cunliffe said.
Andrew Tyrie, chairman of the UK parliament's Treasury
Select Committee, said attempts to force euro contracts to be
cleared in the euro zone would be at best futile, and at worst
an act of needless self-harm.
Xavier Rolet, chief executive of the London Stock Exchange
Group which owns LCH, has said that if euro denominated clearing
was forced to move to the euro zone it could put thousands of
jobs in the City of London financial district at risk.
(Reporting by Huw Jones; Editing by Alison Williams and Mark