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The EU wants to introduce new rules for London's euro clearing business
The Financial Times reported today that the EU is considering changes in rules that could strip London of one of its flagship financial activities via territorial restrictions on certain euro clearing transactions even before Britain leaves The EU.
Although the form of the intervention has not yet been decided, the European Commission plans to support legal changes in order to give the European Central Bank responsibility for locating key market infrastructures.
France wants restrictions on compensation to be included in the legislative proposals. These new rules to limit the euro's clearing outside of the euro area could be implemented before the expected withdrawal of Britain from the EU in 2019.
Defending the clearing of the euro has become a major concern for London, which is the world's largest clearing house for euro derivatives. According to Intercontinental Exchange (ICE), 75% of transactions with a daily average value of $573 billion are executed in London.
According to the Financial Times: "The forced repatriation of European clearing would deprive European banks of access to trading liquidity and clearing and create fragmentation, which would considerably increase costs for banks and customers."
Simon Kirby, the British minister of the city, also warned that the clearing activity of the euro would probably be transferred to New York if the EU tried to undermine the UK's dominant position.
President François Hollande, often referred to as France's worst president, wants the euro compensation to be transferred to the eurozone after the Brexit, while a representative of the bank of France asked the commission to address the issue of the Brexit via an update of EU rules on trading derivatives and clearing houses. So far, there has been no policy change within the commission.