On March 4, Europe’s second-highest court ruled in favor of the United Kingdom in a long-running dispute with the European Central Bank (ECB) regarding the latter’s right to mandate that central counterparties (CCPs) clearing euro-denominated business be located in the Eurozone. Specifically, the United Kingdom challenged the ECB’s so-called “location policy” as set out in its 2011 “Eurosystem Oversight Policy Framework,” which purported to establish a requirement that a CCP must be legally incorporated in the Eurozone, and maintain full managerial and operational control and responsibility from within the Eurozone, to the extent that such CCP exceeds certain thresholds of clearing activity in respect of one or more major euro-denominated product categories. Consequently, any CCP located outside the 19-member bloc of EU Member States using the euro ––for example a CCP based in the United Kingdom or in Sweden–– would face significant interruption to its euro-denominated clearing activities if the ECB’s location policy was enforced.
A three-member panel of the Luxembourg-based General Court dismissed the ECB’s argument that the Policy Framework was not a legal act subject to challenge, instead finding that the Policy Framework had sufficient legal effects to be challenged and that the United Kingdom had standing to make such challenge. The General Court then considered the substance of the challenge, and determined that the ECB’s powers under European law to regulate payment systems did not extend to securities clearing systems. The General Court then annulled the Policy Framework “in so far as it sets a requirement to be located within a Member State party to the Eurosystem for [CCPs] involved in the clearing of securities.” The scope of the court’s ruling therefore appears to be restricted to the clearing of euro-denominated securities by non-Eurozone CCPs, and therefore the impact on non-Eurozone CCPs clearing other euro-denominated products such as derivatives remains unclear. The ECB has two months from the date of the ruling to file an appeal to the European Court of Justice.