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One of the Bank of England’s deputy governors has hit back against claims from senior European politicians over stripping the City of London of its role as a hub for eurozone clearing after the Brexit vote.
Sir Jon Cunliffe told a London audience on Wednesday that financial stability was not at risk if trades denominated in a particular currency were directed through central clearing houses outside the single currency area.
In remarks for a prepared speech, Sir Jon said:
There may of course be trade or industrial policy reason to such an approach. And there can also be broader political considerations. We cannot ignore the fact that such incentives may be at play – now or in the future.
But a policy of ‘currency nationalism’ is not a necessary condition for either financial or indeed monetary stability – as is demonstrated by international experience in relation to financial market infrastructure over recent decades.
Such a policy, if applied by all jurisdictions, is in the end likely to be a road to the splintering of this global infrastructure – and to further fragmentation of the global capital market – rather than the route to the sound and efficient management of risk.
Sir Jon’s remarks will also be seen as a direct rebuttal to politicians on the continent vying for euro clearing post-Brexit but also to concerns expressed by European central bankers who have fretted about financial stability.
His comments come hours before the BoE’s internal watchdog will publish a report on the central bank’s oversight of so-called financial market infrastructure, which includes clearing houses as well as payment services and exchanges.
According to minutes of the BoE’s court — akin to its board — last year, the Independent Evaluation Office will tell the BoE to beef up its supervision of this vital plumbing that underpins the financial system.
Benoit Cœuré, a French member of the European Central Bank’s executive board, warned last month that it would be ‘challenging’ to reach an agreement that would maintain the City’s ability to sell its services to the EU, particularly an arrangement to maintain euro clearing in the UK.
The arrangement has been previously and unsuccessfully challenged by the ECB in the EU’s courts.
Sir Jon, a former UK ambassador to the EU, made his comments as the London Stock Exchange and Deutsche Boerse await antitrust clearance from Brussels for their €29bn merger, which will create Europe’s largest exchanges operator.
The deal has been complicated by the UK’s decision to leave the EU, with German regulators and politicians unhappy about the prospect of the merged group’s holding company being located outside the bloc.
The BoE, along with the Financial Conduct Authority, both have vetoes on the deal going through.