EU court hands UK win over euro trading
By Benjamin Fox
The EU’s General Court has handed the UK a notable victory in financial services regulation by striking down plans by the European Central Bank to require firms which process securities trades to be located within the Eurozone.
The ECB had said that so-called central clearing counter parties (CCPs) handling transactions worth more than €5 billion should be inside the single currency area because it would make it easier to intervene if they got into trouble.
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Clearing houses are used by the two sides involved in stock and bond trades to process the sales, and operate by charging a fee to guarantee the sales should one side end up defaulting.
However, in its ruling on Wednesday (4 March), the Luxembourg-based court stated that the ECB lacked “the competence necessary to regulate the activity of securities clearing systems as its competence is limited to payment systems alone”.
The case was brought by the UK government, which claimed that the ECB’s plans, set out in its Eurosystem Oversight Policy Framework drafted back in 2011, undermined the integrity of the EU's single market. It would also have threatened London's status as Europe's financial capital
Demand for using CCPs to process transactions has increased from both financial institutions and regulators in the years since the financial crisis, because it is easier to monitor the respective risk positions of institutions through them.
The ruling is the first time that the UK has successfully overturned rules. The UK government lodged three legal challenges against EU financial regulations in the last legislative term related to short selling, the proposed financial transactions tax and bank bonuses. In the first two cases, the court threw out the UK's challenge, while the UK withdrew its challenge to the bank bonus laws last autumn.
“We have been consistently clear there needs to be a level playing field for all countries in Europe’s Single Market, whether they are in the Eurozone or not,” said UK Chancellor George Osborne in a statement following the ruling.
“That’s why we brought a legal challenge against the European Central Bank’s utterly discriminatory location policy,” he said, describing the judgement as “a major win for Britain and a major win for all those who want to see a European economy that is both open and successful.”
In a statement, the Bank of England said that central banks should work together to make sure that CCPs had sufficient supplies of different currencies to process trades.
It said it was "important for the safety and soundness of CCPs that they have access to liquidity arrangements in the currencies they clear," the bank stated.
The judgement will also come as a boon to political leaders who say that the UK’s membership of the bloc allows it to defend the interests of the City.
"Outside the EU, the UK would not have been able to challenge this decision and achieve this result,” said Liberal Democrat MEP Catherine Bearder.