Sadiq Khan: UK must remain clearing king after Brexit

London mayor Sadiq Khan will weigh in on the debate over Europe's post-Brexit clearing industry today, warning the EU that it must guarantee firms continued access to the UK in the event of a “no deal” scenario.

Khan will tell German finance minister Olaf Scholz that EU banks and traders should not be permanently “locked out” of London – where around 80 per cent of euro-denominated derivatives, stocks and bonds are cleared – after Britain leaves the bloc in March next year.

The Bank of England has said EU-based firms have derivative contracts worth a notional £69 trillion with UK central clearing counterparties, £41 trillion of which mature after Brexit. Moving the contracts out of the UK could cost European businesses €22bn (£19.3bn) a year.

Last month the Bank pleaded with the EU to install measures that would allow EU firms continued access to prevent financial market chaos.

The European Commission’s vice president Valdis Dombrovskis recently attempted to soothe concerns by signalling that EU firms will continue to recognise London’s clearing houses if the UK leaves the EU next year without a deal. However, he warned this would be for a limited time only and on the condition the UK sticks closely to Brussels’ regulatory and supervisory standards.

Today Khan will say that businesses need more than temporary reassurances.

He will say: “I am pleased that the EU will continue to allow access to UK clearing services in the short term, if Brexit talks end in a no deal. However, London’s status as a global leader in financial services cannot be replicated elsewhere in Europe, and so I’ll be calling on Mr Scholz to work with me to ensure financial markets across Europe are given a long-term commitment that businesses will be able to access the capital’s clearing services.”

Canada policy chair Catherine McGuinness told City A.M: “London’s role as the main hub for euro clearing benefits both the UK and the EU. Any steps to restrict clearing by location would make it less efficient, in turn increasing costs for households and businesses on both sides of the Channel. This would be in no-one’s interests.

“Disruption to clearing houses in the event of a no-deal Brexit would pose a significant threat to financial stability. The commitment by Valdis Dombrovskis to maintain access for UK clearing houses on a temporary basis was, therefore, a welcome step in the right direction. EU regulators must now urgently take action to give legal weight to these words.”