France has defied Germany with a deal enabling its banks to continue using clearing houses in the City of London, in another massive blow for Project Fear.
And City expert David Buik has said the decision eloquently demonstrates that such institutions were “a jewel in the crown” of Britain’s financial services sector.
When Britain took the decision to quit the bloc in 2016, doom-laden predictions suggested thousands of jobs would relocate from Square Mile to financial centres on the continent including Paris and Frankfurt.
However, the exodus has never materialised, despite ECB staff reportedly lobbying governments to require EU banks to move between 30 to 40 percent of their trade from London.
The final deal is likely to see a vastly smaller percentage moving over in what is seen as a big win for both the City and banks in the European Union.
Clearing houses are financial institutions formed to facilitate the exchange of payments, securities, and derivatives transactions, effectively acting as an intermediary.
The decision – reported today by Politico – stems from the fact that UK clearing houses – particularly the London Clearing House (LCH) – remain popular choices for banks the world over, for whom it is cheaper to have all their business in one place.
Mr Buik said: “You know what they say, ‘if it’s not broken, don’t try and mend it.
“The London Clearing House is a massive success story.
“It works for the financial world, regardless of political persuasion.”
Mr Buik, who is a consultant to Aquis Exchange PLC, as well as a regular commentator on BBC continued: “It would have been a totally unnecessary indulgence to have moved Euro-denominated securities to Paris, Brussels, Frankfurt or wherever.
“Above all else the financial community is pragmatic.
“It would have been insane to move 40 percent of the clearing to someone like Deutsche Boerse out of spite.
“It has always been a jewel in our very considerable financial crown.”
Generally speaking Paris is keen on boosting European at the expense of the UK – but France, led by Emmanuel Macron, is widely understood to have been the driving force in maintaining the status quo.
Specifically, Mr Macron’s government is understood to have conclude its banks stood to lose international business and would face higher costs if euro-clearing relocated across the English Channel.
Perrine Herrenschmidt, head of Brussels office, European public policy at the International Swaps and Derivatives Association, explained: “There is a cost to moving clearing to the EU. Reducing European banks’ access to UK clearinghouses decreases the strategic autonomy of banks and their clients.
Conversely, Germany, would have gained from LCH being cut off, because the likely competitor – Eurex, part of Deutsche Boerse – is based in Frankfurt.
Nicolas Verón, senior fellow at the Bruegel thinktank, said: “It’s clear that mandating EU-specific clearing would increase some costs for at least some intermediaries.
“At the same time, that gives more control to the EU authorities.
“But even that is complicated by the fact that there is no EU-level clearing supervisory mandate.”
