London - At the moment, 75% of global euro-denominated derivatives transactions (April 2016 data, Bank for International Settlements) and 39% of global interest-rate swaps happen in the UK; the world's largest clearing house of interest-rate swaps, LCH, is also based in London. Planning ahead, executives estimate that moving euro-clearing from London to the continent is likely to take years, and will be disruptive and costly, with employees and operations essential to the clearing function to be among the first to move following a Brexit trigger.
Earlier this month, chancellor Philip Hammond pledged to protect London's prime spot in European trading in interest-rate swaps, but banks are now skeptical he will succeed. Adding to pressure from French and German officials, the European Commission Vice-President Valdis Dombrovskis - the bloc's financial services chief, reiterated today that the UK would have to choose between imposing immigration controls and ensuring free trade with the EU for its financial firms. Back in the UK, former Bank of England policy maker Charlie Bean claims that losing the rights on euro clearing "is certain", while EU integration consultant Graham Bishop says "[the EU] would be crazy to allow huge volumes of activity with the potential to create an issue of financial instability within the euro area to continue outside [its] control".
The ECB had issued a lawsuit to require euro trades to be cleared in the euro area long before the Brexit vote, arguing that it should have oversight over clearing in its own currency in times of crisis. In March 2015, the EU General Court eventually ruled against the 'location policy' of the central bank whilst acknowledging that laws could be amended. At the time, a UK lawmaker commented that the outcome would have been different had the case involved a non-EU country rather than the UK.