LONDON (Reuters) - The future of London’s financial clearing business is a significant consideration in Britain’s negotiations on leaving the European Union, but is probably not a top priority for government, its financial services minister said on Wednesday.
London dominates clearing of derivatives denominated in euros, mainly via the London Stock Exchange’s LCH.Clearnet business, and attempts by the European Central Bank to shift clearing to the euro zone were thwarted by the bloc’s top court.
But after Britain voted in June to leave the EU, French President Francois Hollande called for clearing of euro denominated securities to shift to the euro zone.
Industry lobby groups in Britain such as TheCityUK have said keeping clearing in London is vitally important and should be one of the government’s core aims in negotiations on new trading terms with the bloc.
Britain’s financial services minister, Simon Kirby, declined to give full backing to such demands at a parliamentary hearing.
“It’s an element of the negotiations. Is it the most important element? Probably not, but it is a significant consideration,” Kirby said when asked whether the finance ministry had analysed the impact of relocating clearing houses away from the capital.
“The whole of Europe, UK included, would be worse off if that particular part of financial services that London offers was dismantled and redistributed across Europe,” Kirby told a committee in the House of Lords.
“There are some people who would have you believe it wouldn’t go to Europe at all, and that it would end up in New York, which would be a very bad place for all of us.”
Kirby echoed Prime Minister Theresa May by saying Britain would seek the best trade deal possible for the country.
Bankers lobbying to maintain “passports”, or access to the EU’s single market after Britain leaves the bloc, worry their traditional champion in government, the finance ministry, is being sidelined.
Lawmakers pressed Kirby several times before he reassured them the treasury was indeed the government department that represents financial services, a sector that paid 66.5 billion pounds in tax in 2014-15.
Katharine Braddick, director for financial services at the finance ministry, said she was conducting a sector-by-sector analysis of how different types of trade agreements would hit revenues, employment and tax receipts.
The information will be passed on to the cabinet committee that will thrash out Britain’s trade talks stance.
Financial industry officials say a soft Brexit - or maintaining full access to the EU market - is unlikely, meaning access to the EU will be reduced for some parts of the sector as Paris, Frankfurt, Luxembourg and Dublin seek to attract banks from Britain.
Some are concerned the government might sacrifice parts of the industry, such as euro clearing, as part of negotiations.
Bank of England Deputy Governor Jon Cunliffe told the committee last week, however, it would be too hard for other European financial centres to replicate the complex “eco-system” of banks, asset managers, clearing houses, accountants and lawyers that make London the world’s biggest financial hub.
Braddick said it was difficult to quantify the impact of various types of trade deals on this eco-system.
“I don’t think that’s a nut we might be able to crack analytically in this timescale,” she said.
Braddick said a loss of passports for asset managers may not be as problematic as initially appeared, though passports were important for investment banks.
Reporting by Huw Jones and William James; Editing by Louise Heavens and Mark Potter