What's going on?

On Tuesday, the European Union (EU) proposed rules aimed at moving a key part of London�s financial industry out of the UK. It looks like the opening salvo in the battle between Britain and Europe over the post-Brexit landscape…

What does this mean?

�Clearinghouses� allow for the trading of certain complex types of financial investments called �derivatives�. Due to their nature and the size of the trades they process, they are heavily regulated.

On Tuesday, the EU proposed new laws that could allow it to force clearinghouses located outside of the EU (e.g. in a post-Brexit Britain) to move into the EU. While it doesn�t necessarily mean the clearinghouses will have to move, the EU regulator wants the authority to force them to if it wanted. This could lead to clearinghouses moving their employees out of London, likely hurting the British economy.

Why should I care?

The bigger picture: This is an example of the risks of Brexit.

Generally speaking, the EU wants to regulate financial services that impact people and companies within its member states. Since lots of those financial services have, to date, been undertaken in London, there is a big risk that the EU will force them out of the UK and into Europe once Brexit is complete. The impact of such a shift is difficult to predict, but given the importance of financial services to the UK�s economy, it seems likely to be significant.

For markets: Uncertainty continues to weigh on Britain.

In the near term, there doesn�t appear to be any major movement of jobs. However, there is a clear disincentive to create jobs in London if they may just be moved in a few years time. That risk affects various industries and it�s an example of why the uncertainty of the Brexit negotiations alone could weigh on the British economy and, by extension, British companies and the value of the pound.