2017.06.2307:17:00UTC+00ECB Seeks More Euro Clearing Supervisory Powers

The European Central Bank has sought more supervisory powers over the clearing activities, in a bid to secure control of the London-based euro clearing post-Brexit.

The Governing Council, led by ECB President Mario Draghi, has recommended an amendment to Article 22 of the Statute of the European System of Central Banks and of the European Central Bank, the bank announced on Friday.

The amendment would provide the ECB with a clear legal competence in the area of central clearing, which would pave the way for the Eurosystem to exercise the powers that are foreseen for central banks issuing a currency.

Clearing activity has gained more significance during Brexit talks with the UK keen to retain the business in London. Meanwhile, European cities such as Frankfurt are eager to attract the firms who may leave Britain after Brexit.

As of now, a substantial volume of euro-denominated derivatives transactions are cleared by central counterparties in London. The Bank of England exercises supervisory powers over them.

"When the United Kingdom exits the EU, there will therefore be a distinct shift in the proportion of such transactions being cleared in CCPs outside the EU's jurisdiction," the European Commission said last week.

This poses significant challenges for safeguarding financial stability in the EU, the commission said.

Such concerns prompted the commission to undertake a review of the European Market Infrastructure Regulation and the latest amendment proposed by the ECB is part of that.

"These powers include a significantly enhanced role for central banks of issue in the supervisory system of central counterparties (CCPs), in particular with regard to the recognition and supervision of systemically important third-country CCPs clearing significant amounts of euro-denominated transactions," the ECB said in a statement.

"The amendments will allow the Eurosystem to monitor and address risks associated with central clearing activities that could affect the conduct of monetary policy, the operation of payment systems and the stability of the euro," the bank added.

The ECB proposal has been sent to the European Parliament and the European Council.