https://orcid.org/0000-0002-4632-9288
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Abstract
The decision by the United Kingdom (UK) to withdraw from the European Union (EU) has reignited tensions around the clearing of euro-denominated derivatives. Yet, the EU has resisted concerted pressure from several member states and the European Central Bank (ECB) to force the relocation of euro clearing away from London. Instead, it has opted to strengthen the supervision of EU and non-EU Central Counterparties (CCPs), leaving the derecognition of third-country CCPs as a last resort. How do we explain this? This article adopts a synthesis approach, combining theories with distinct domains of application to provide a more comprehensive explanation. We argue that a state-centric perspective helps us to understand the preferences of key member states, but it cannot fully explain the EU’s position because it ignores the critical role of supranational institutions. In addition, a transnational approach has limited explanatory power because the most concerted opposition came from a small number of dealer banks, not a wide coalition of financial interests. To address these gaps, we argue that incorporating a bureaucratic politics perspective can add significant analytical leverage. This reveals that the EU’s resistance to a location policy reflected the need to reconcile the competing bureaucratic interests of different supranational institutions.
Acknowledgements
We wish to thank the anonymous reviewers and the journal editors for their perceptive and constructive comments. We also benefited from presenting our paper at the 2019 Biannual Conference of the European Union Studies Association in Denver, the 2019 Annual Conference of the Council of European Studies in Madrid and a research colloquium at the University of Bologna. We are particularly grateful to Simon Bulmer, David Howarth, Erik Jones, Aneta Spendzharova, Elliot Posner and Matthias Thiemann for their helpful advice and suggestions.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 Henceforth, we refer to the 2011 ECB proposal as a ‘location policy’, and to the requirements for euro clearing envisaged in the proposal for EMIR II as ‘euro clearing restrictions’.
2 The dealer banks are: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland, Société Générale, UBS, Wells Fargo, Credit Agricole and Nomura.
3 The document is not publicly available. Its existence and content were reported by Financial News, 19 February 2009 ‘French working group readies a clearing assault’, available at https://www.fnlondon.com/articles/french-working-group-readies-a-clearing-assault-1-20090219
4 Equivalence rules stipulate that unless third country rules are equivalent to EU rules, foreign firms providing services in the EU or doing business with EU counterparts would be subject to EU regulation in addition to their home country regulation. Without equivalence, foreign firms failing to respect EU regulations would be blocked from accessing the Single Market.
6 The consultation responses to the Commission’s proposal reveal that most industry responses came from third country entities and transnational business associations. Of the 18 responses, six came from the US, four from the UK, four from Brussels, two from Germany, one from France and one from Austria.
7 German supervisors, in particular, were very reluctant to relinquish responsibility for supervising Eurex Clearing in Frankfurt, arguing that the EU should ‘not try to fix what is not broken’ and insisting that the ECB and ESMA should only be given an advisory role (interview, Brussels, July 2018).
8 Sweden and Poland echoed the Commission’s concern that new euro clearing restrictions should not be used to disadvantage non euro area states.
9 In a further softening of the EU’s position, the Commission issued a temporary equivalence decision, whereby the regulatory framework applicable to CCPs in the UK would be considered as equivalent to the one in the EU, in the event of a no deal Brexit. Subsequently, ESMA also recognized UK-based CCPs in order to ensure continued access of EU-based companies to their clearing services. See https://www.esma.europa.eu/press-news/esma-news/esma-ready-review-uk-ccps%E2%80%99-and-csds%E2%80%99-recognition-applications-no-deal-brexit
Additional information
Notes on contributors
Scott James
Dr. Scott James is Reader in Political Economy in the Department of Political Economy, King's College London. From 2012 to 2016, he was Principal Investigator on the ESRC-funded ‘Voices in the City’ project, and since 2016 has been part of the UK research team for the nine-country Horizon 2020 ‘EMU Choices’ project. In 2017 Dr. James held a visiting position at the Blavatnik School of Government, University of Oxford. He has published 18 articles in leading international journals, and books with Manchester University Press and Oxford University Press.
Lucia Quaglia
Dr. Lucia Quaglia is a Professor of Political Science at the University of Bologna. She was professor of Political Science at the University of York (2012–2017). She was awarded research fellowships by the Hanse-Wissenschafts Kolleg, the University of Bremen, the Fonds National de la Recherche of Luxembourg, the Max Planck Institute in Cologne, the Scuola Normale Superiore and the European University Institute. She has published 7 books, 4 of which with Oxford University Press. She has guest co-edited 4 special issues of highly ranked academic journals. She has published more than 50 articles in peer reviewed journals, many of which in leading publication outlets.