European Central Bank bid to boost euro clearing oversight adds to Brexit fears

The European Central Bank has put forward proposals that would enhance its oversight over euro clearing, adding to fears that London is set to lose its grip on the multibillion pound market following Brexit.

The ECB has tabled a prospective legal amendment that would give it a "significantly enhanced" role in regulating the lucrative market, which settles business and trade conducted in the EU currency.

The amendment would provide the ECB with "clear legal competence" in the area of central clearing, which is currently dominated by London firms such as LCH.

The ECB said: "These powers include a significantly enhanced role for central banks of issue in the supervisory system of central counterparties (CCPs), in particular with regard to the recognition and supervision of systemically important third-country CCPs clearing significant amounts of euro-denominated transactions."

It added that the change will allow "the Eurosystem" to monitor and address risks associated with central clearing activities that could affect the conduct of "monetary policy, the operation of payment systems and the stability of the euro".

The move comes after the European Commission put forward legislative reforms that would impose stricter supervision of the bloc's derivatives market and could force operators to leave London as a result of Brexit.

EU institutions and member states had raised concerns over the fact up to 75% of euro-denominated interest rate derivatives are currently cleared in the UK, which will no longer be supervised by EU regulators once it leaves the bloc.

The head of Frankfurt Main Finance, the German city's lobby group, has recently said that euro clearing businesses are already moving accounts to the country.

The recommendation has been sent to the European Parliament and the Commission will issue an opinion on it, the ECB said.