UK wins Euro Clearing House Ruling

Pile of Euro bank notes and coinsEuro clearing houses can be located outside the single currency bloc, the European Union’s second highest court has ruled.

Responding to a challenge by the UK, the General Court said on Wednesday (March 4th) that the European Central Bank (ECB) was wrong to insist that euro clearing houses must be located in the 19-nation eurozone.

"The ECB does not have the competence necessary to impose such a requirement on central counterparties involved in the clearing of securities," the Luxembourg-based court said in a statement.

It’s a considerable victory for London’s City as the UK fights policies seen to damage the country’s financial hub status.

The ECB had argued that keeping clearing houses handling more than €5 billion in euro-denominated securities would make it easier to intervene if required. But the General Court said this went beyond oversight and amounted to regulating market infrastructure companies, a power the ECB does not currently have.

“The Eurosystem has major concerns with regard to the development of major euro financial market infrastructures that are located outside of the euro area, since this could potentially place in question the Eurosystem’s control over the euro,” the ECB said in a 2011 paper.

The court said the ECB should seek powers from the EU if it wants to regulate securities clearing houses.

Defeat for the UK’s legal challenge could have forced the London Stock Exchange's LCH.Clearnet clearing house to shift most of its euro-denominated operations to continental Europe.

Britain had argued that the ECB ruling would have precluded London-based clearers from access to the financial markets in the euro area. Two similar cases are still pending at the General Court.