The British Government is to launch legal action against the European Central Bank (ECB) amid fears that proposed regulations will impact upon the City of London.
The ECB revealed earlier this year that it planned to require institutions dealing in some euro-denominated financial products to be based in the Eurozone.
It is thought the Government’s move is the first legal bid against the ECB from an EU member state.
Under the plans the conditions would take effect if a clearing house’s daily net credit exposure was more than ?5bn (£4.4bn) or five per cent of the market – apart from cases of clearing houses in the eurozone.
The move would hit clearing houses such as LCH.Clearnet in the City, which is home to 40 per cent of global over-the-counter derivative trading.
The legal bid, which comes amid claims of a financial services land grab by Europe, will claim that the plans go against the base principles – such as the free movement of services and capital – of European law and the single market.
Policymakers at the Bank of England are already resisting Brussels’ bid to take control of banking regulation in a move which would strip it of much of its role as a national supervisor.
The move comes after Britain launched a successful challenge to a French plan to give clearing houses access to central bank liquidity. Had the bid been successful, it is thought it would have effectively limited euro-denominated clearing to the eurozone nations.
However the ECB backed its proposals, suggesting financial stability was dependent upon affected clearing houses being based within the eurozone.
The Government challenge to the location policy will be launched on Wednesday through the European Court of Justice.
The Government also claims that the policy goes against international attempts to reform derivative markets through the G20 amid calls for reforms to be “internationally consistent” and “non-discriminatory”.
A Treasury spokesman said: “This decision contravenes European law and fundamental single market principles by preventing the clearing of some financial products outside the euro area.
“That is why we have begun proceedings against the European Central Bank through the European Court of Justice.
“The Government wants to see this resolved swiftly and without involving the courts, but if necessary will not shy away from continuing legal action to make sure there is a level playing field across the EU for British businesses.”