The European Union's second-highest court has ruled the European Central Bank (ECB) was wrong to insist that euro clearing houses should be based in the single currency area, a policy Britain had challenged to defend its financial sector.
Lawyers had said a failure of Britain's challenge could force the London Stock Exchange's LCH.Clearnet clearing house to shift large chunks of its euro-denominated operations to continental Europe.
Defeat could also have seen London's financial center losing influence to the euro zone, while giving ammunition to anti-EU campaigners ahead of May national elections in which the role of the bloc will be an important issue.
The General Court said on Wednesday it annulled the policy published by the ECB, which required clearing houses to be located in the 19 country euro zone. "The ECB does not have the competence necessary to impose such a requirement," the Luxembourg-based court said.
Britain's finance minister George Osborne welcomed the ruling. "This is a major win for Britain and a major win for all those who want to see a European economy that is both open and successful," he said.
The ECB had no immediate comment.
The Bank of England, which supervises clearing houses in Britain, said central banks can already swap currencies when needed. "The Bank and the ECB will continue to seek a coordinated and shared approach for achieving our common objectives," it said.
Clearing houses stand between the two sides of stock and bond trades, ensuring smooth completion of transactions even if one side goes bust. Britain, a member of the EU but not the euro zone, had challenged the ECB's policy, saying it went against the single market.
The ECB had said having clearing houses that handle more than 5 billion euros ($5.6 billion) of euro-denominated securities inside the euro zone would make it easier to intervene if they got into trouble.
But the court said such a policy went beyond oversight to actually regulating market infrastructure companies, a power the ECB does not have under EU treaty.
If the ECB wanted to regulate clearing houses it should request the EU give it such powers, the court said.
The win is welcome for Britain after it lost a challenge to EU rules on short-selling shares and withdrew an objection to the EU's cap on banker bonuses.
Officials in London, home to Europe's biggest financial sector, said it showed Britain can continue to play a strong role in the EU.
"The single market is vital to the City and there must be a level playing field between Eurozone and non-Eurozone member states," said Mark Boleat, policy chairman at the City of London Corporation.
