The City beats the ECB: counterparty clearing houses can stay in London
EU General Court rules that the central bank lacks the competence to regulate securities clearing systems
The City of London will remain a home for central counterparty clearing houses after a Brussels court has overruled a previous decision by the European Central Bank (ECB).
The General Court of the European Union announced on Wednesday that it had annulled the Eurosystem Oversight Policy Framework published by the ECB that required central counterparties to be located in the Eurozone.
Central counterparty clearing houses (central counterparties or CCPs) located in London include, LCH.Clearnet, CME Clearing Europe, LME Clear. ICE Clear is a recognised clearing houses but is not recognised by the Bank of England as a central counterparty.
The ECB policy would have forced CCPs located in the City to move to the likes of Paris or Frankfurt.
The ECB published its Eurosystem Oversight Policy Framework in July 2011, which outlined its oversight of “payment, clearing and settlement systems”.
The Eurozone monetary authority reached the conclusion that securities settlement systems and CCPs were key components of the financial system and that a malfunctioning on those infrastructures located outside the euro area could have adverse effects on payment systems inside the region.
Thus, the ECB reached the conclusion that “infrastructures that settle euro-denominated transactions should be legally incorporated in the Eurozone with full managerial and operational control and responsibility, over all core functions, exercised from within that area”.
However, after an appeal by the United Kingdom to the policy move, the EU General Court agreed that the “ECB lacks the competence necessary to regulate the activity of securities clearing systems”.