LONDON London is good at clearing euro-denominated derivatives deals and there is no case to shift the business to the continent after Brexit, the policy chief for Britain's financial sector said on Tuesday.
The combative stance of Catherine McGuinness, newly appointed head of policy for the City of London financial district, contrasted with the more nuanced position of Bank of England Governor Mark Carney, who has spoken of an "appropriate" amount of euro clearing remaining in London post-Brexit.
Her comments came as the EU's executive Commission prepares to publish a draft law next month on euro clearing. France is in the vanguard of countries pushing for the lucrative business to relocate to the euro zone after Britain leaves the bloc in 2019.
McGuinness said clearing was a $1 trillion a day business and it was natural that people wanted a slice of the cake.
"And in this case, all the evidence points one way: that the mass uprooting and offshoring of part of the industry – of clearing of transactions in one currency – would not only be vastly complicated, but also vastly damaging and potentially destabilizing," McGuinness told a conference of the Futures Industry Association in London.
The Commission has considered several options, including forced migration of business and tighter supervision of foreign clearing houses that handle large amounts of euro-denominated transactions.
France argues shifting clearing to Europe would make it easier for the European Central Bank to directly monitor risks arising from the derivatives market.
But McGuinness said markets had chosen London because it's systemically safer to centralize clearing so that exposures can be netted.
"It’s because it makes the posting of collateral more cost-effective. And, frankly, it’s because we’re good at it."
London has the scale, infrastructure and expert clearing professionals, she said.
"And if we split off one currency, with euro clearing moving to, say, Paris, all we’ll see is systemic risk going up, liquidity going down, costs hitting the roof," she added.
"In sum, it’d be a completely avoidable outcome."
Euro-denominated clearing in Europe is dominated by the London Stock Exchange's (LSE.L) LCH clearing house in London. Deutsche Boerse's Eurex Clearing (DB1Gn.DE) in Frankfurt is, however, ready to handle any sharp increase in swaps clearing.
McGuinness said forced migration of clearing would not be in the interest of the global financial system, and that U.S. regulators were also watching developments in Brussels closely.
(Reporting by Huw Jones; Editing by Mark Trevelyan)