Bank of England chief blasts EU over attempt to woo City firms

Bank of England chief Andrew Bailey warns the EU against ‘serious escalation’ of post-Brexit row over City firms, warning that its attempts to force them to relocate in the eurozone would be of ‘dubious legality’

  • Andrew Bailey faced MPs on the Treasury Committee this afternoon
  • Europe’s top banks asked to justify why they should be allowed to stay in London
  • December’s Brexit deal did not include an agreement on financial services 

The Bank of England governor lashed out at the EU today, suggesting it could be breaking the law by attempting to force City firms to relocate to the eurozone in order to keep trading with the bloc. 

Andrew Bailey said that a row with Brussels over ‘equivalence’ rules for financial service masked a resurgence of a ‘location policy’ designed to weaken a powerhouse of the UK economy. 

He addressed MPs on the Treasury Committee this afternoon, days after it was revealed Europe’s top banks are being asked to justify why they should not have to shift clearing of euro-denominated derivatives worth billions of euros from London to the EU. 

December’s Brexit deal did not include an agreement on financial services including clearing house trade in euros on the London Stock Exchange that amounts to more than £150billion every day.  

Last November Rishi Sunak unilaterally allow financial services firms from the EU to do business in post-Brexit Britain and bemoaned the failure of the EU to strike a similar deal for the City since 2016.

Mr Bailey said the EU had first suggested a location policy when the euro currency was launched in 1999, but ‘Brexit has obviously been in a sense a stimulus to revive this debate’.

‘The issue of location policy is not a new one in that sense, we have been aware of it. What has been most notable in the last few days is how it seems to be coming to the surface. The timing isn’t that surprising given where we are.

‘It would be very controversial in my view because legislating extraterritorially is controversial anyway, and obviously of dubious legality frankly. 

Andrew Bailey said that a row with Brussels over ‘equivalence’ rules for financial service masked a resurgence of a ‘location policy’ designed to weaken a powerhouse of the UK economy.

He addressed MPs on the Treasury Committee this afternoon, days after it was revealed Europe’s top banks are being asked to justify why they should not have to shift clearing of euro-denominated derivatives worth billions of euros from London to the EU

‘Probably therefore the more likely way to do it would be the second way, that in itself is controversial, which is to say to firms ‘you need to move this business into our area and if you don’t we’ll think of something else to do’. 

‘That would be very controversial, frankly I think it would be a very serious escalation of the issue.’

Trading in EU shares and derivatives has already left Britain for the continent after the UK’s full departure from the bloc’s single market on December 31.

The EU is now targeting clearing which is dominated by the London Stock Exchange’s LCH arm.

Clearing houses stand between the two sides of a trade to ensure its smooth completion.

They have also long been a battleground between Britain and EU lawmakers, with Paris and Frankfurt keen to exploit Brexit to challenge London’s dominance of the financial markets. 

EU leaders believe the bulk of the clearing for its currency should reside in the eurozone and be regulated by its own European Central Bank.  

Some 75 per cent of euro clearing positions at clearing house LCH are not held by EU counterparties and the EU should not be targeting them, Bailey said.

‘I have to say to you quite bluntly that that would be highly controversial and I have to say that that would be something that we would, I think, have to and want to resist very firmly,’ he said.

Brussels has given LCH permission to continue clearing euro trades for EU firms until mid-2022, providing time for banks to shift positions from London to the bloc.

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