Britain should continue its action of suing the European Central Bank (ECB), in a bid to ward to the European Union’s (EU) continuing protectionism, says a top lawyer.
The UK government is bringing a case against the European Central Bank for violation of free movement laws after the ECB released a policy paper this summer requiring clearing houses to be based within the eurozone if they handle more than 5% of the euro market in a financial product. The move would allegedly put the UK at a disadvantage. Lawyers are questioning if the ECB has overstepped its boundaries of control.
“This is a violation of the principle of free movement of services, and a protectionist measure,” says Jacqui Hatfield, partner and head of financial services advisory at law firm Reed Smith. “Furthermore, it is questionable whether the ECB actually has the authority to implement measures such as this.”
Experts suspect the new rule will be defended on the grounds of the protection of financial stability in the EU.
“The argument will likely be raised by the ECB that the measure is necessary to ensure the financial stability of the EU,” says Hatfield. “The problem is that it is difficult to say that the exclusion of the UK in this way will have any positive impact on the financial stability of the EU – aside from any questions of whether the measure may be disproportionate to its aims. The UK has a tendency to impose its own banking regulations without having regard to possible interplay with the EU, and by pushing this it may open itself to further scrutiny on its own regulatory measures. Ultimately, the UK must attack this, and it must go all the way, but it must be aware of the possibility of such criticism.”
Investment officers are also concerned that this may be the first sign of a growing culture of protectionism, and may be aimed towards an eventual stranglehold on the clearing of CDS products.
“This is the beginning of creeping protectionism and the start of short banning on CDS,” says Louis Gargour, chief investment officer at LNG Capital. “It is clear that this is going on as the French and Germans want to enable more control over clearing for CDS products, which of course is leading to a short banning on sovereign debt. The UK has always been a more free and open market, which is why it has evolved as a financial capital and centre for credit for some time; by moving the clearing houses to Europe, this will effectively rein in some control.”