Global banking businesses will face nightmarish decisions if the UK loses its access to euro-clearing trading as part of the Brexit negotiations, the Japanese ambassador to the UK has warned.
Koji Tsuruoaka said that Japanese companies would be among those affected as he emphasised the seriousness of what is at stake as the UK prepares for Brexit. Some EU countries are determined to stop the UK retaining its euro-clearing rights post-Brexit, so the business would be transferred to Frankfurt and Paris.
Tsuruoaka said most global financial service providers, including Japanese companies, have concentrated resources in London because it was the most efficient way for global capital to operate.
Removal of UK euro-clearing rights “is not something that would be welcomed at all by the financial service providers,” he said. “Companies have come a long way to establish the most efficient clearing house here in London. Now to be told to go elsewhere, it would be a huge challenge.” He added that no other city represented “a natural answer” as a substitute to London and it would be impossible for banks to discuss with each other where to relocate.
“It would be nightmarish if you think about the business decision they would be forced to make,” he said.
Since the euro was first used as a currency in 1999, London has acted as the centre of euro-clearing for derivatives, despite not being within the single currency area. The French have insisted that no one will be prepared to see the main clearing house outside of the EU in the wake of Brexit.
Tsuruoaka also suggested that it might be necessary for the UK to negotiate an interim Brexit deal with the EU due to the complexity of the talks. There is a two-year negotiating period that would start once Theresa May invokes article 50, the means by which the UK notifies the EU of its plan to leave. The foreign affairs select committee has begun an inquiry into the possibility of an interim deal in case this is not long enough to settle a full agreement.
Speaking to an EU Lords select committee, the ambassador said: “You may not be able to come to the final conclusion of the permanent agreement because of the time constraint, or because of the difficult need for co-ordination.” He said a transitional deal may “allow business to continue as usual”. He said that ideally the final agreement would not change how UK-based companies accessed the EU single market.