The financial and business hub of London, known as The City, is one of the world’s leading financial centres. Indeed, the City handles the largest single concentration of Forex trading in the world – it was estimated in 2013 that 41% of all Forex trades passed through the UK (mostly in The City) with the value of trading worth something like £3 trillion per day.
In 2011, the European Central Bank (ECB) took the position that any major Euro transactions should be handled by firms based within the EU – of course “major transaction” is a moveable feast. The target of this move was to be “Clearing Houses” – many of which are based in The City. A clearing house enables the guaranteed trading of shares and other assets between two parties by ensuring that the transaction would go ahead even if one part defaults - a kind of insurance facility. The clearing houses charge a fee for their services.
The UK took the ECB to court, the EU General Court, based in Luxembourg, and won. The UK was arguing that the ECB stance was contrary to the functioning of the EU single market for the free movement of people, goods, capital and services. Had the ECB prevailed, UK clearing houses would have been banned from involvement in Euro-transacted deals which would have been damaging to The City’s reputation as a “one-stop” financial shop.
In the event, the EU General Court ruled that the ECB did not have the legal power to enforce its decision, so arguments about the integrity of the single market were therefore moot. It noted: "The ECB lacks the competence necessary to regulate the activity of securities clearing systems as its competence is limited to payment systems alone”.
The City is home to some of the world’s largest clearing houses such as LCH, Clearnet and ICE Clear Europe. Demand for the services of clearing houses has been boosted as regulators are demanding banks and other financial institutions to use them such that their risk positions are easier to monitor.