14 December 2016
Reporter: Stephanie Palmer

UK’s clearing benefits won’t pass to the EU

Although the UK will likely lose its ability to clear euro-denominated transactions when it exits the EU, the economic benefits will probably not be passed to Europe, according to a report from the House of Lords EU Financial Affairs Sub-Committee.

The report, Brexit: financial services, considered what leaving the EU could mean for financial institutions and service providers.

It called London the world’s leading financial services centre, followed by New York, and suggested that other European cities are not at the same level.

A statement on the report said: “Any attempt to unpick London’s highly developed financial services ecosystem could result in much of the business lost by the UK relocating to New York or other financial centres outside the EU, rather than the EU.”

There is a concern that the UK is likely to lose the ability to clear euro-denominated transactions if and when it leaves the EU. However, the report suggested that, in fact, relocating clearing services to the eurozone will not bring the same benefits to the EU that clearing in the UK provides at the moment.

Relocating clearing to somewhere like New York would provided more like-for-like benefits, however clearing there would not allow the EU to benefit from repatriation of business.

Baroness Falkner, chair of the EU Financial Affairs Sub-Committee, said: “The EU should also carefully consider the findings of this report. EU firms rely on the services provided in the UK, and pain caused to the UK’s financial sector will not be the EU’s gain, but New York’s. We are in danger of a lose-lose scenario if pragmatism does not prevail.”

The report went on to say that some firms do not appear to be aware of their own reliance on the current passporting arrangements. It stressed that it would be in the interest of these firms, and in the national interest, for them to work with the government and regulators to determine the actual extent of this reliance.

Falkner said: “[The government] should go into negotiations with the strongest possible evidence base. It needs to determine as precisely as possible which firms currently rely on passporting and the degree to which equivalence provisions might provide a substitute.”

“We found those provisions to be patchy, unreliable and vulnerable to political influence: the government should seek to bolster them wherever possible.”

The report also noted that the UK’s financial sector employs approximately 1.1 million people, many of whom are not EU nationals.

Accessing high-quality staff and transferring them between the UK and the EU is an ongoing issue for the financial services industry, particularly in the financial technology sector, which, according to the report, relies heavily on sourcing talent from overseas.

Finally, the report highlighted the importance of an agreed ‘transitional period’, both when the UK issues Article 50, and as the UK negotiates relationships with the EU.

Falkner said: “The government has a lot of work to do. First of all, it must, early in the negotiation process, agree a transitional period so as to prevent UK based financial services firms from restructuring or relocating on the basis of a ‘worst-case’ scenario.”

The report is the fourth of six reports from the House of Lords European Union Committee on the potential impact of Brexit in various different areas.

More clearing and settlement news
The latest news from Asset Servicing Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Caceis gains ICF bank trading platform mandate
21 December 2017 | Frankfurt | Reporter: Zsuzsa Szabo
Caceis has received a mandate from ICF Bank to be the settlement agent for the Frankfurt-based bank’s Quotrix platform
LCH establishes clearing of credit index options
20 December 2017 | London | Reporter: Jenna Lomax
The central counterparty is the first clearinghouse to implement a risk framework specifically for the clearing of credit index options
Post-trade upgrade on the cards for Saudi Stock Exchange
07 December 2017 | Riyadh | Reporter: Jenna Lomax
Nasdaq will replace Tadawul’s current post-trade registry, depository, clearing and settlement solution
CSD Prague opens a direct account in Euroclear Bank SA/NV
05 December 2017 | Frankfurt | Reporter: Drew Nicol
The account will allow the central securities depositary to access a wider range of services and to have access to many additional foreign markets, according to Euroclear
Japan earmarks Q2 2019 for T+2 settlement shift
07 November 2017 | Tokyo | Reporter: Drew Nichol
Japan has unveiled a “tentative” timeline for its exchanges’ shift from a T+3 to T+2 settlement cycle, with eye towards Q2 2019
Iberclear bank on Citi to provide global custody
20 October 2017 | Madrid | Reporter: Jenna Lomax
The agreement, signed at this years Sibos conference in Toronto, will enable Spanish clearing houses to settle international securities via local CSDs
Eurex Clearing launches partnership programme
09 October 2017 | Frankfurt | Reporter: Theo Andrew
The programme plans to build a “balanced ecosystem”, responsible for aligning responsibilities and benefits related to economics and governance, bringing “greater choice and transparency” to the market
More clearing and settlement news