Euro clearing after Brexit: shifting locations and oversight
| DOI | https://doi.org/10.1108/JFRC-02-2020-0021 |
| Published date | 08 October 2020 |
| Date | 08 October 2020 |
| Pages | 187-201 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation |
| Author | Sven Van Kerckhoven,Jed Odermatt |
Euro clearing after Brexit: shifting
locations and oversight
Sven Van Kerckhoven
Department of Business and Economics,
Vesalius College/Institute for European Studies,
Vrije Universiteit Brussel, Brussel, Belgium, and
Jed Odermatt
City Law School, City University of London, London, UK
Abstract
Purpose –This paper investigatesthe impact of moving Central Counterparty Clearing Houses(CCPs) that
clear euro-denominated transactions to the Eurozone after the withdrawal of the UK from the European
Union. Prior to Brexit, the City of London had a dominant position in euro-clearing, but in the aftermathof
Brexit, clearing houses might decide to move to the EU27. This paper aims to investigate the impact of
moving euro-clearingto the EU27.
Design/methodology/approach –This paper provides an economic, political and legal investigation based
on desk research. It studies the relevant materials, as they relate to the functioning of Central Counterparty Clearing
in the aftermath of Brexit, with specificattention to the potential shift of locations and oversight.
Findings –The development of a EU27 financial hub and the possibilityto increase oversight over euro-
denominated financialtransactions, which were partly at the roots of the financial and Eurozone crisis,could
strengthen the market shaping of European financial markets. However, localizing euro-denominated
transactions in Europe could potentially give rise to efficiency losses and a higher risk for companies and
investors. Furthermore,the European regulatory framework currently faces certainweaknesses, obstructing
the regulatorypotential of the EU.
Research limitations/implications –As the Brexit negotiations are not yet finished, thispaper does
not intend to set out a definite outcomeof the processescurrently taking place.
Practical implications –Shifting locations and oversightof CCPs as a result of Brexit could lead to the
establishment of a large financialcentre within the EU-27. At the same time, it is to be expected that sucha
developmentwill have a significant impact on the financial infrastructureof the City of London.
Originality/value –There exists an important trade-off with regard to shifting locations that need to be at the
forefront of the discussions and the negotiations when dealing with Brexit. This seems to be neglected ina lot of the
current policy debates. This paper takes stock of the ongoing debate and how it relates to the functioning of CCPs.
Keywords European Union, Brexit, Central Counterparty Clearing (CCP), EU27
Paper type Research paper
1. Introduction
The withdrawal of the UK from the European Union will have a significant impact on the
economies of both the UK and the EU. Assessing the impact of Brexit on each of the different
sectors of the economy is a difficult task, and will crucially depend on the future relationship
agreement between the UK and the EU that will need to be finalized at the end of the current
transition period. One industry that will be profoundly affected is the financial industry.
This work was supported by the Erasmus + programme as a Jean Monnet Module on ‘The
Economics of European (Dis)Integration’(599986-EPP-1-2018-1-BE-EPPJMO-MODULE).
Euro clearing
187
Received22 February 2020
Revised13 July 2020
Accepted10 September 2020
Journalof Financial Regulation
andCompliance
Vol.29 No. 2, 2021
pp. 187-201
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-02-2020-0021
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