City of London
London is the EU's major financial centre. iStock

London faces losing its euro clearing business once Britain leaves the European Union in 2019, after it emerged Brussels has drawn up plans to move the operations to the EU.

The British capital is the bloc's financial centre and currently processes approximately 75% of euro clearing transaction, worth a combined €1tn (£880bn) a day in an industry that employs thousands of people.

European Commission vice-president Valdis Dombrovskis said Brexit needed "certain adjustments to our rules", adding a draft law was being worked on.

It is understood the law will determine whether London will retain the right to host its euro clearing business even after Britain leaves the union in two-years' time.

"The purpose of our legislative proposal is to ensure financial stability and not moving business for the sake of moving business," he said.

"As we face the departure of the largest EU financial centre, we need to make certain adjustments to our rules to ensure that our efforts remain on track."

Euro clearing is a crucial part of the financial sector as it guarantees the flow of money around the world. Clearing houses are the intermediaries of a transaction of financial contracts tied to the underlying value of a share, bond, currency or index.

The European parliament and EU finance ministers will have to approve the draft law and they are expected to make a decision on the matter before the UK leaves the union. However, Britain will also have a say on the law, as it will retain voting rights until the Brexit process is completed.

Chancellor Philip Hammond is expected to warn Brussels that stripping London of its clearing business could result in clearing becoming more fragmented, which would in turn lead to higher costs for EU firms.

"The UK's central counterparties [clearing houses] play a crucial role in supporting economic growth here and across the EU," said a spokesman for the Treasury.

"We are clear that how UK firms access EU markets, and vice versa, is a matter for the forthcoming exit negotiations."

Lobby groups in the City echoed those thoughts, indicating taking clearing away from the capital would only lead to unnecessary risks.

"While these proposals appear to fall short of the worst-case scenario, the European commission is holding back any real detail on when or how it might pull the trigger on a location policy," said Miles Celic, the chief executive of TheCityUK.

"Currency nationalism is likely [to] lead to less competition, higher costs and market fragmentation."

Catherine McGuinness, policy chairman at the City of London Corporation, the local government authority for the capital's financial district, added the EU was "simply not equipped to handle the volume of clearing that the UK does each day".

Last month, Xavier Rolet, the chief executive of the London Stock Exchange Group, warned moving euro clearing away from London after Brexit could cost investors up to €100bn.

The comments came after the European Commission began its consultation over the future of the clearing of euro-denominated derivatives. Some of the proposals put forward by the commission included insisting euro-denominated transactions can only be cleared within Eurozone member states.

"This would achieve the opposite of the G20 aims," Rolet said. "It would increase, not reduce, levels of systemic risk and increase costs for European companies, diverting capital away from the European economy."