The second highest court in The European Union has ruled that the European Central Bank (ECB) was wrong to insist that euro-clearing houses be based in a single currency area, a policy Britain had challenged to defend its financial sector.
The victory, which came as a surprise to some, has finally ended a three-year dispute, which could have banned the clearing and settlement of euro-transacted deals in the UK and protected the cities position as a major financial centre.
The ECB had said that clearing-houses managing large euro deals should be eurozone-based. However, the EU General Court ruled that the ECB lacked the legal powers needed to enforce this.
In its ruling, the Luxemburg-based court said "The ECB lacks the competence necessary to regulate the activity of securities clearing systems as its competence is limited to payment systems alone."
The UK had argued that the policy, which was set out in a 2011 ECB paper but never enforced, contended the EU's single market establishing the free movement of goods, people, services and capital.
Had the ECB won the ruling, it could have seen the City of London lose some of its influence as a financial trading centre.
Some of the biggest clearing-houses including LCH. Clearnet and ICE Clear Europe are based in London, and many officials have said that it showed Britain can and will continue to play a strong role in the EU.
Britain's Chancellor 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 has said that it will carefully review and examine the judgment before it decides on any future actions.