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UK takes ECB to court to save City’s euro trading

Action to counter plan by ECB to force clearing houses to move into eurozone

The Treasury is ready to take the European Central Bank (ECB) to the EU’s highest court to block rules that could jeopardise the City as a centre for trading in euro-dominated financial instruments.

The legal action follows a plan by the ECB to force many of the specialist clearing houses that in effect guarantee trading in financial products, to move into the eurozone.

Through its new location policy, the ECB wants any of the so-called “central counterparties” that handle more than 5% of a euro-denominated product to be based in the eurozone. This could force organisations such as the LCH Clearnet clearing house to re-evaluate its base in London. The Treasury will argue at the European Court of Justice that the ECB plan contravenes the principles of the European Union and EU law, including the free movement of services and capital across the union.

A Treasury spokesperson said: “This decision contravenes European law and fundamental single market principles by preventing the clearing of some financial products outside the euro area. That is why we have begun proceedings against the ECB through the European Court of Justice. The government wants to see this resolved swiftly and without involving the courts, but if necessary will not shy away from continuing legal action to make sure there is a level playing field across the EU for British businesses.”

The policy change was posted on the ECB’s website at the start of July and could affect the City, home to a vibrant and large market of euro-denominated financial products such as interest rate swaps.

The Treasury is fighting to maintain London’s position as a leading financial centre and is sensitive to any EU rules that might put the City at a disadvantage.

Michael McKee, partner at law firm DLA Piper, said: “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. The EU treaties relate to all EU countries. The eurozone is not a separate legal entity for EU treaty purposes.” © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds