09 April 2017

Financial Times: France’s Sapin warns of post-Brexit trading loss for UK

[...] Speaking to the Financial Times, Michel Sapin said that other euro area countries share Paris’s conviction that key processes such as the clearing of euro-denominated derivatives must be relocated so that they come under the full oversight of EU supervisors.

[...]“Everyone sees that . . . this goes to the heart of the resilience of our [financial market] arrangements and of our sovereignty over our money,” he said, noting also that the problem is not necessarily confined to clearing. “The strategic vision is that we must be masters, as Great Britain is the master when it comes to the rules that apply for the pound sterling, of the authorities that oversee the resilience of our arrangements,” he said. “And we are going to have this sovereignty.”

London is the European hub for trading in swaps — handling a notional $900bn a day in euro-denominated deals on these derivatives contracts. It is a position that has long been a source of contention in Europe. The UK in 2015 won a court battle against the European Central Bank over the Frankfurt-based institution’s attempt to apply a so-called “location policy” that clearing — a key part of trade processing — should take place within the currency bloc’s territory when the swaps transactions are in euros.

Mr Sapin, however, said that the kind of oversight that would be required to ease euro area concerns would most likely be unacceptable to Britain, as it would run counter to the spirit of Brexit. “I understood that one of the most effective stimuli and motivations behind Brexit was that Great Britain should take back its sovereignty,” he said.

It will take a lot to threaten London’s position as Europe’s financial capital “If Great Britain accepts today that the rules in force in London should be of the same nature, level, with the same effects [as those in Europe] and with the same judges to settles questions about how to apply them, I would say why not. But this doesn’t seem to correspond to the prevailing mood [in the UK].”

The European Commission is also wrestling with the question of what to do about clearing after Brexit. Valdis Dombrovskis, vice-president of the European Commission in charge of financial services policy, noted in a speech on Thursday that the City’s role in handling a “very significant proportion” of clearing activities in some market segments will “surely be a matter of important reflection in the coming months and years,” notably because the UK will no longer be covered by key EU legislation, known as EMIR.

The commission moved in March to delay plans for updating EMIR, fuelling speculation that it is weighing options for how to tackle the problem. “Brexit has consequences,” Mr Sapin said. “And one of those consequences is that, obviously, everything must be re-examined when it comes to financial-market access.” 

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