The Bank of England and other U.K. supervisors may prioritize sterling over the stability of the euro area during a crisis, a lawyer for the European Central Bank told a court today to justify its policy on clearinghouses.
Romano Subiotto, a lawyer representing the Frankfurt-based bank, said the ECB wants clearinghouses handling trades in euros to be based in the single-currency area to defend against a default that “could cause havoc in the euro area” that would be “far more serious than” the 2008 collapse of Lehman Brothers Holdings Inc. ECB oversight requires “day-to-day monitoring” that it can’t guarantee outside the euro area.
The ECB is defending itself against three U.K. challenges to its policy on clearinghouses in a hearing at the European Union’s General Court in Luxembourg. David Cameron’s government is fighting policies it argues would punish the nation’s financial hub because the U.K. has kept the pound sterling.
Britain hasn’t always given “proper consideration to euro policy concerns,” Subiotto told the court, citing U.K. actions during the collapse of broker MF Global Holdings Ltd. The U.K.’s Financial Service Authority, which was replaced last year, also didn’t consult eurozone central banks or Spanish authorities before it ordered LCH.Clearnet Group Ltd. to “drastically reduce” its exposure to Spanish debt, he said.
The U.K. is arguing that the ECB’s policy requiring clearinghouses handling euro-denominated trades to be located in the 18-nation currency bloc runs a “real risk of retaliatory treatment” that could see fragmentation of clearing along currency lines, said Kieron Beal, a lawyer representing the U.K. government.
While the rules have the greatest impact on the City of London, they also discriminate against all 10 EU states that aren’t part of the euro and may increase market risks because “the efficiency of multi-currency clearing will be lost,” Beal told the court. The U.K.’s challenges are being supported by Sweden.
The hearing at the court in Luxembourg is the latest in a series of U.K. maneuvers against EU responses to the financial crisis, including a possible tax on transactions and curbs on bankers’ bonuses. The U.K. is on a losing streak at the European Court of Justice. It failed to overturn EU powers to ban short selling and was told that an early challenge against the transaction-tax plan was premature.
Cameron last month suffered defeat at the hands of fellow EU leaders who brushed off his vocal opposition to the appointment of Jean-Claude Juncker, the former prime minister of Luxembourg, as president of the European Commission.