‘London MUST lose euro trading’ – top EU envoy
On the eve of crucial Brexit talks, Continental bankers close ranks... threatening 83,000 jobs in the City
HUNDREDS of billions of pounds of financial deals conducted in euros through the London Stock Exchange every day should be moved to the Continent after Brexit, according to one of Europe’s top bankers, threatening tens of thousands of City jobs.
The call, from Christian Noyer, France’s Brexit envoy for finance and former head of the Banque de France, will come as a blow to the City, which had hoped EU bankers were softening their stance on where trades in euros are cleared.
Speaking exclusively to The Mail on Sunday, Noyer said that having the bulk of euro trading cleared in London had made the euro-crisis worse. Asked if European Union regulators should force the process to be managed on the Continent he said: ‘Definitely, it’s clear.’
With Brexit talks due to begin tomorrow, the City battle centres on so-called euro-clearing, the mechanism by which derivatives trades in euros and other financial contracts in the currency are managed between buyers and sellers. City figures have warned that losing this business poses the biggest single threat to jobs. Accountancy giant EY has estimated that 83,000 London jobs depend on it.
Last week, the European Commission said it would not recommend immediate relocation of the business, but left the final say to regulators at the European Central Bank and European Securities and Markets Authority. Noyer, himself a former vice president of the ECB and a current adviser to French President Emmanuel Macron, was speaking just days after the Commission’s report. He said: ‘If a market is cleared 10 per cent in London, 5 per cent in New York, 5 per cent in Asia, and 80 percent in the EU 27, I think that’s OK. That’s where equivalence of regulation, access to data, and supervisors all can play the role of ensuring that there is no big accident. ‘But if you have 90 per cent of the market that is outside then you have a risk.’ The LSE’s London Clearing House is responsible for three quarters of the global market in euro derivatives clearing. Noyer’s intervention highlights the determination of Europe’s central bankers to take closer control of clearing houses since the eurozone crisis began in 2009.In 2011 LCH, London’s main clearing operation, required banks to provide extra cash or securities to deal with possible losses on EU countries’ debt, driving up borrowing costs in the eurozone. Noyer said: ‘It fuelled the eurozone crisis at exactly the wrong moment. The mandate of UK regulators was not to protect the euro area, it was to protect the City. The increase was not a normal increase, it was an explosion of margin calls.’
EU oversight would mean regulation of clearing houses would have to take the financial stability of the eurozone into account.
The London Stock Exchange, whose French boss Xavier Rolet has issued some of the fiercest defences on clearing, backed London’s role in euro-trading last week. He said: ‘A location policy increases, not decreases, risk and costs for customers. Given this, European and global customers have overwhelmingly expressed a preference for shared regulation between the EU, UK and US.’
One issue stressed by the LSE is that clearing many currencies in one place allows transactions to be offset against others, meaning banks have to provide less margin. But Noyer said it should be possible to create systems to allow cross-border offsetting.
Noyer’s one concession was that London should be given time to move the operations. He said: ‘It takes probably several years. We are talking about the risk of having crises in ten, 20 or 30 years.’
Noyer was optimistic that Paris would win a big chunk of the business the City will lose as a result of Brexit. He said: ‘I see it as a very good sign for ourselves that many major firms have waited until the French elections to make a decision and finalise their plans.’
Macron has pledged to reform France’s labour and tax laws. Noyer said he hoped France would have the ‘best’ labour market flexibility in Europe bar the UK and Ireland ‘in a few months from now’, with insurers, asset managers and bank trading rooms moving to Paris.
He added: ‘There is no other city in Europe that has the pool of talent Paris has. You need an ecosystem, you need a regulator understanding those activities and we have that.’
HSBC is moving 1,000 people to Paris and Noyer said: ‘All the other groups are still making their strategy. So we shall see. They will probably not concentrate everything in the same place.’
Noyer said he supported the idea of a transition period for financial services after the UK leaves the EU, dismissing suggestions that Brexit posed any risk to EU financial stability. ‘It would be good to grant an additional one to two years to be sure the transfer of contracts with clients takes place in an orderly way,’ he said.
‘I hope this can be agreed in negotiation between the UK and the EU. But it could be decided unilaterally by the EU because we could always say the new rules will apply only fully in one year or two.’