After a three year dispute over the place of the City of London in Europe’s single market, the EU General Court has ruled that the European Central Bank (“ECB”) lacked the legal powers to enforce a ban on clearing and settlement of euro-denominated deals in the UK. The ECB’s 2011 policy required all clearing houses that handle more than €5 billion euros per day per product category to move inside the Eurozone, claiming this would make it easier to oversee the clearing and settlement activities of such organizations. Though never implemented in practice, the policy was challenged by the UK on grounds that it went against the single market.

For the UK an unsuccessful challenge would have forced the London Stock Exchange’s LCH. Clearnet clearing house, which clears about €250 billion euro-denominated instruments every day, and ICE Clear Europe, the world’s largest processor of credit default swaps, to shift large portions of their euro-denominated operations to continental Europe, resulting in the loss of London’s financial center’s influence to the Eurozone and further ammunition for anti-EU campaigners in the lead up to the May national elections.

The General Court found that the ECB policy went beyond oversight to regulating market infrastructure companies – a power the ECB does not have as its competence is limited to payment systems under Article 127 (2) of the Treaty on the Functioning of the European Union. The Court did not address the question of whether the ECB policy had discriminated against UK operators or undermined the fundamental freedoms on which the EU single market is based. These issues could be further considered in the event of an appeal by the ECB to the Court of Justice of the European Union, or a proposal to grant the ECB the necessary authority through EU legislation.