France is upping the stakes in the battle for London's €930 billion a day clearing business

LONDON — One of the most senior officials in European central banking has staked France’s claim to attract the lucrative euro clearing business after Brexit, saying he can’t see how operations can be allowed to stay in the UK once it has left the EU.

“Euro clearing operations should be based where euro-system supervision can be exercised. After Brexit, we don’t see how this could be in London, François Villeroy de Galhau, governor of the Banque de France said on Monday according to a report from The Times.

Villeroy de Galhau, who sits on the governing council of the European Central Bank, also said that in recent weeks he has had “numerous and serious contacts” with bankers and other financiers looking to shift operations from London to France once Brexit begins in earnest.

He spoke just as the battle to attract clearing houses from London to continental Europe heats up following news in recent weeks that the European Commission is working on a means of stripping clearing from the UK.

Clearing houses in London manage counterparty credit risk, acting as a middle-man in swaps and derivatives trades to guarantee the contract in the event that one of the parties involved in the trade goes bust.

The acceptance of English law and widespread use of English language has made London a hub for clearing globally, and it handles more than 70% of the daily euro clearing business, equivalent to around €930 billion (£792 billion, $US995 billion) of trades per day, according to a House of Lords report.

However, eurozone financial bigwigs have consistently argued that euro clearing should take place within the euro area, and Britain has repeatedly had to defend its right to clear trades, given that it does not have the euro. In 2015, the UK won a court battle to continue clearing in London.

Those cries have intensified since last June, with influential politicians from individual EU countries and the European Commission repeatedly calling for clearing operations to be moved to continental Europe.

While EU politicians and central bankers are fighting to force clearing from London, last week Xavier Rolet, chief executive of the London Stock Exchange warned that doing so could cost investors up to €100 billion in the long run.

“London clears 18 major currencies and these multi-currency netting efficiencies meant LCH saved its customers $US21 billion in capital last year. Strip out euro clearing and you lose these efficiencies, potentially increasing cumulative trading costs by €100 billion over five years,” he wrote in the Times.

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