The British government is to sue the European Central Bank over draft regulations that would force major clearing houses to relocate their operations away from the City of London.
The ECB in July outlined plans to ban large clearing houses from dealing in euro-denominated financial products unless they were based in a eurozone country. The proposals would apply to clearing houses that handle more than five per cent of the daily net market exposure, and would hit UK-based clearers such as LCH.Clearnet, and newer competitors from the US such as the CME and IntecContinentalExchange, which have chosen to set up shop in London.
If applied, the rules would force clearing firms to move their operations to large European centres such as Paris or Frankfurt, shifting the centre of gravity in EU trading and undermining the City's pre-eminent position in the financial markets.
The UK government says it will institute proceedings in the European Court of Justice in an attempt to over-turn the plans, challenging the ECB on the grounds that the proposals contravene rules governing the free movement of goods and services in the eurozone.
Michael McKee, partner at City law firm DLA Piper, believes the UK Treasury has legitimate grounds for the action: "There would certainly appear to be a prima facie arguable case that any attempt to require a clearing house, located in the EU but outside of the Eurozone, to relocate inside the Eurozone breaches EU Treaty free movement requirements," he says. "The EU treaties relate to all EU countries. The Eurozone is not a separate legal entity for EU Treaty purposes."