- Kay Swinburne MEP: “My French colleagues were obviously on a mission from 2009 to try and actually get, before Brexit, as much back to Paris as they could.”
- Swinburne helped counter Lagarde’s efforts to force business out of the City by drafting reports that supported the business being done in London.
- Swinburne helped “set the scene” for Mifid II, EU financial legislation that has just come in and “could have been a lot worse.”
- Current efforts to force euro-denominated clearing out of London and into the eurozone post-Brexit “run counter to the global thinking,” Swinburne said.
LONDON — International Monetary Fund chief Christine Lagarde wanted to use European legislation to force financial business from London to Paris when she was the French finance minister, according to a senior British MEP.
Tory MEP Kay Swinburne told Business Insider that she collaborated with Downing Street to block Lagarde’s efforts by drafting a report defending high-frequency trading, an area vulnerable to attack.
“My French colleagues were obviously on a mission from 2009 to try and actually get, before Brexit, as much back to Paris as they could,” Swinburne told BI. “Obviously it was our mission to stop that.”
The IMF, where Lagarde has been managing director since 2011, declined to comment on Lagarde’s behalf.
‘They were already preparing reports’
Swinburne, who first became an MEP in 2009, said she met Lagarde shortly after joining the European Parliament. Lagarde told her she planned to use an upcoming legislation review as a means to force business back to France.
“Christine Lagarde was finance minister of France at the time and any women on econ [the EU’s Economics Committee] — there weren’t that many of us — she decided to take us under her wing and take us out for lunches and dinners to introduce us to the world of politics and financial services,” Swinburne said.
“She took me for lunch on my very first month there and told me the plan that they had with the Mifid review that was coming up in 2010. They were already preparing reports to set the scene for taking back trading from London and putting it back in the national exchanges.”
Mifid — the “Markets In Financial Instruments Directive” — came into force across the EU in 2008 and standardized the regulation around investment services across the bloc.
An unintended consequence of the regulation is that it provided a boost to London’s financial economy, as secondary share trading businesses set up in the capital to service clients across the EU, rather than being based locally or shares trading on national exchanges.
Lagarde, who was French finance minister from 2007 to 2011, planned to draft reports ahead of the official review of the legislation because “whoever takes the initiative usually gets the leading edge and the commission then follows,” Swinburne said.
‘It’s all to counter Christine Lagarde’s reports’
After discussing the situation with senior colleagues, Swinburne said she enlisted the help of then-Chancellor George Osborne to produce a paper illustrating the benefit of the current financial setup, in a bid to defend London from Lagarde’s efforts.
“We got a parliament position paper that said, HFT [high-frequency trading] isn’t bad, you need to put a framework around it but you can do this,” Swinburne said. “Algorithmic is just normal trading, at speed, using computers so you need to have rules and procedures for checking that the algorithms don’t do any damage.”
The paper, published in 2012, was titled “The Future of Computer Trading in Financial Markets: An International Perspective” and was produced by the UK’s Office for Science with funding from the Treasury.
The report’s author, Professor Sir John Beddington, wrote that “commonly held negative perceptions surrounding HFT are not supported by the available evidence” but said that “policymakers are justified in being concerned about the possible effects of HFT on instability in financial markets.” He provided “clear advice on what regulatory measures might be most effective in addressing those concerns in the shorter term, while preserving any benefits that HFT/AT [algorithmic trading] may bring.”
Swinburne told BI: “We set that scene. It’s all to counter Christine Lagarde’s reports. We started playing the game that the French had played so well knowing that Mifid was going to be potentially the biggest disruptor to the future of capital markets in London.”
Mifid II came into force in January 2018, imposing stricter rules on a range of financial activities. Swinburne said she is pleased with how the implementation is going in the UK and said the legislation “could have been a lot, lot worse.”
‘Counter to the global thinking’
France is still agitating to try and win financial business back from the UK, this time using Brexit as a means to lobby for new rules that would force business from London.
Shortly after Britain’s 2016 EU referendum, France’s then-President Francois Hollande said Britain couldn’t retain its key euro clearing role after it leaves the EU. Since then, French ministers and EU officials since have repeatedly suggested that clearing of euro-denominated trades should move from London to a eurozone member country post-Brexit.
Clearing houses manage credit risk, acting as a middle-man in swaps and derivatives trades to guarantee the contract in the event that one of the parties involved goes bust. The acceptance of English law and widespread use of English language has made London a hub for clearing globally.
Swinburne said: “Do you actually reduce your risk by forming a new CCP [central clearing counterparty] in the eurozone to clear euro-denominated assets? The question resoundingly is no.
“You increase your risk because you reduce your pool of clearing members, you reduce the number of individuals exposed to this, you reduce liquidity. In moments of crisis, when everything starts to freeze, you have no repo market that can support it, you’ve got no clearing members that can step in and actually offer you a buffer.
“Therefore, you’ve actually reduced your ability to withstand a storm. It so runs counter to the global thinking on why you need CCPs in the first place.”
Swinburne said European politicians are now starting to realise this, telling BI: “Now they’re starting to realise that a swap, which is the major market that London actually holds, is just that: there’s another currency on the other side of it. There’s no point having clearing of just one side, you need the other side too.”