Most people outside of banking won’t have heard of Euroclear. It’s a Brussels-based settlement provider that enables the transfer of ownership of securities between seller and buyer. The firm is the focal point of a major geopolitical confrontation between Russia and the European Union.
The controversy stems from an EU initiative to leverage frozen Russian assets held at Euroclear to finance Ukraine’s war effort. In response, Russia’s central bank has filed a lawsuit in Moscow seeking damages for the freezing of its assets.
This legal manoeuvre represents an attempt to seize assets worth €17 billion (£14.89 billion) held by Euroclear in Russia on behalf of its clients and pursue further claims on similar Euroclear assets in other jurisdictions not part of the international sanctions imposed on Russia. These could include China, Hong Kong and states in the Gulf and Central Asia.
To appreciate the implications of these competing claims, it is essential to understand Euroclear’s role and origins.
Euroclear functions as a central securities depository (CSD). These are invisible, yet vital, pieces of infrastructure for financial markets. The function of a CSD is to transfer ownership of securities – titles of ownership of financial assets – from seller to buyer once payment is confirmed.
Euroclear is an international CSD. This means it handles not just equities traded on a particular stock exchange like national CSDs do, but a vast range of financial instruments across many markets and jurisdictions.
This includes Eurobonds, supranational agency bonds, government and corporate debt, money market instruments, asset-backed securities and more. It also provides critical collateral management and securities borrowing and lending services.
In 2024, it processed 331 million transactions worth €1,162 trillion (£877 billion) and held more than €40 trillion of clients’ assets.
This privileged position depends on trust. Depositories such as Euroclear process ownership changes via book-entry transfer. That means assets are held by the CSDs and recorded in a database of holdings, which confers legal ownership of the titles. This ensures uncontested and efficient transactions and reduces the risk of one side of a trade not fulfilling its obligations.
If the trust that allows market participants to assign their assets to a CSD like Euroclear for safekeeping falters, the book-entry transfer system breaks down and markets suffer.
Risks of EU’s plan
The EU’s plan to use frozen Russian assets as collateral for loans to Ukraine introduces significant risks. If market participants fear politically motivated asset seizures, they may relocate holdings to jurisdictions perceived as safer. This could potentially weaken Euroclear’s position and destabilise the markets it serves.
The recent EU proposals have evolved to avoid outright seizure of the Russian assets. Instead it has opted for freezing them indefinitely. Under this arrangement, legal ownership remains with Euroclear’s Russian clients, while Euroclear uses these assets as collateral for loans to the EU to finance Ukraine.
But this raises important questions. What happens if sanctions are lifted or Russia’s legal challenges are successful? Could Euroclear demand immediate repayment from the EU? And could Euroclear withstand the financial strain of restoring all these assets to their Russian owners en masse? These uncertainties are a threat to Euroclear’s stability – and, by extension, the smooth operation of the global markets it serves.
Even unsuccessful litigation on the side of Euroclear’s Russian clients could freeze Euroclear’s holdings at national CSDs in non-sanction jurisdictions for prolonged periods. This could create operational problems for Euroclear and unsettle its clients.
The European Commission has suggested that Euroclear compensate clients for Russian-related losses using its immobilised Russian funds. But this would mean fewer funds available for loans to the EU for financing Ukraine.
EPA/Ida Marie Odgaard
The issues above are further complicated by Euroclear’s history and its part in the vast multitrillion dollar Eurodollar and Eurobond markets for offshore currency deposits and debt securities. Founded in 1968 by Morgan Guaranty Trust in Brussels, Euroclear supported the burgeoning Eurodollar and Eurobond markets.
These markets were based on offshore dollar pools that included Soviet dollar deposits seeking refuge from US jurisdiction during the cold war.
Belgium and Euroclear had an interest in nurturing Soviet trust. This was formalised in the 1989 Belgium–Luxembourg Economic Union–USSR bilateral investment treaty that is still in force between Belgium and Russia.
The treaty guarantees fair treatment, protection against expropriation, free transfer of funds and provides for dispute resolution and arbitration mechanisms. Allowing Russian assets to be used as loan collateral may be in breach of that treaty.
European financial leadership under threat
Europe’s world leadership in offshore currency and debt markets and the international financial infrastructures that support them) was achieved in the 1950s and 1960s due to perceived political risks in the US. But it’s now threatened by similar perceived risks in Europe if this plan to leverage Russian assets against its will is realised.
Euroclear is a rare example of a European global financial services champion which could provide valuable economic returns to fund Europe’s future ability to counter external threats. This could be both directly, through the generation of revenues and taxes, as well as indirectly.
Euroclear acts as part of a backbone for the EU’s financial infrastructures. It helps make Europe a central and critical part of the global financial system, enhancing market integration in Europe and across the globe, and channelling large reserves of international capital into the European financial system.
A misstep now could damage that competitive advantage, as well as cause financial turmoil and – in the longer run – potentially divert asset flows away from Europe to other, competing jurisdictions.
Most people outside of banking won’t have heard of Euroclear. It’s a Brussels-based settlement provider that enables the transfer of ownership of securities between seller and buyer. The firm is the focal point of a major geopolitical confrontation between Russia and the European Union.
The controversy stems from an EU initiative to leverage frozen Russian assets held at Euroclear to finance Ukraine’s war effort. In response, Russia’s central bank has filed a lawsuit in Moscow seeking damages for the freezing of its assets.
This legal manoeuvre represents an attempt to seize assets worth €17 billion (£14.89 billion) held by Euroclear in Russia on behalf of its clients and pursue further claims on similar Euroclear assets in other jurisdictions not part of the international sanctions imposed on Russia. These could include China, Hong Kong and states in the Gulf and Central Asia.
To appreciate the implications of these competing claims, it is essential to understand Euroclear’s role and origins.
Euroclear functions as a central securities depository (CSD). These are invisible, yet vital, pieces of infrastructure for financial markets. The function of a CSD is to transfer ownership of securities – titles of ownership of financial assets – from seller to buyer once payment is confirmed.
Euroclear is an international CSD. This means it handles not just equities traded on a particular stock exchange like national CSDs do, but a vast range of financial instruments across many markets and jurisdictions.
This includes Eurobonds, supranational agency bonds, government and corporate debt, money market instruments, asset-backed securities and more. It also provides critical collateral management and securities borrowing and lending services.
In 2024, it processed 331 million transactions worth €1,162 trillion (£877 billion) and held more than €40 trillion of clients’ assets.
This privileged position depends on trust. Depositories such as Euroclear process ownership changes via book-entry transfer. That means assets are held by the CSDs and recorded in a database of holdings, which confers legal ownership of the titles. This ensures uncontested and efficient transactions and reduces the risk of one side of a trade not fulfilling its obligations.
If the trust that allows market participants to assign their assets to a CSD like Euroclear for safekeeping falters, the book-entry transfer system breaks down and markets suffer.
Risks of EU’s plan
The EU’s plan to use frozen Russian assets as collateral for loans to Ukraine introduces significant risks. If market participants fear politically motivated asset seizures, they may relocate holdings to jurisdictions perceived as safer. This could potentially weaken Euroclear’s position and destabilise the markets it serves.
The recent EU proposals have evolved to avoid outright seizure of the Russian assets. Instead it has opted for freezing them indefinitely. Under this arrangement, legal ownership remains with Euroclear’s Russian clients, while Euroclear uses these assets as collateral for loans to the EU to finance Ukraine.
But this raises important questions. What happens if sanctions are lifted or Russia’s legal challenges are successful? Could Euroclear demand immediate repayment from the EU? And could Euroclear withstand the financial strain of restoring all these assets to their Russian owners en masse? These uncertainties are a threat to Euroclear’s stability – and, by extension, the smooth operation of the global markets it serves.
Even unsuccessful litigation on the side of Euroclear’s Russian clients could freeze Euroclear’s holdings at national CSDs in non-sanction jurisdictions for prolonged periods. This could create operational problems for Euroclear and unsettle its clients.
The European Commission has suggested that Euroclear compensate clients for Russian-related losses using its immobilised Russian funds. But this would mean fewer funds available for loans to the EU for financing Ukraine.
EPA/Ida Marie Odgaard
The issues above are further complicated by Euroclear’s history and its part in the vast multitrillion dollar Eurodollar and Eurobond markets for offshore currency deposits and debt securities. Founded in 1968 by Morgan Guaranty Trust in Brussels, Euroclear supported the burgeoning Eurodollar and Eurobond markets.
These markets were based on offshore dollar pools that included Soviet dollar deposits seeking refuge from US jurisdiction during the cold war.
Belgium and Euroclear had an interest in nurturing Soviet trust. This was formalised in the 1989 Belgium–Luxembourg Economic Union–USSR bilateral investment treaty that is still in force between Belgium and Russia.
The treaty guarantees fair treatment, protection against expropriation, free transfer of funds and provides for dispute resolution and arbitration mechanisms. Allowing Russian assets to be used as loan collateral may be in breach of that treaty.
European financial leadership under threat
Europe’s world leadership in offshore currency and debt markets and the international financial infrastructures that support them) was achieved in the 1950s and 1960s due to perceived political risks in the US. But it’s now threatened by similar perceived risks in Europe if this plan to leverage Russian assets against its will is realised.
Euroclear is a rare example of a European global financial services champion which could provide valuable economic returns to fund Europe’s future ability to counter external threats. This could be both directly, through the generation of revenues and taxes, as well as indirectly.
Euroclear acts as part of a backbone for the EU’s financial infrastructures. It helps make Europe a central and critical part of the global financial system, enhancing market integration in Europe and across the globe, and channelling large reserves of international capital into the European financial system.
A misstep now could damage that competitive advantage, as well as cause financial turmoil and – in the longer run – potentially divert asset flows away from Europe to other, competing jurisdictions.
