New Euroclear CEO: ‘West opens Pandora’s box if it confiscates Russian assets’

Valérie Urbain, who will start work this week as the new CEO of the Brussels securities giant Euroclear, warns that foreign investors will lose their confidence in Europe if the West were to confiscate Russian assets blocked in Brussels without any hassle.

“Well, crying certainly isn’t going to help either.” Valérie Urbain smiles with some surprise when we ask her whether she sometimes realizes that she is single-handedly responsible for the stability of our global financial system. This week, the 59-year-old French-speaking Brussels native succeeds Lieve Mostrey as CEO of Euroclear, which, as an indispensable link in international securities trading, produces crazy figures. In the first quarter alone, the Belgian financial giant ensured that 80.6 million transactions between banks, asset managers, pension funds and other major investors were completed successfully.

At the same time, Euroclear has a staggering 39,000 billion euros in assets in custody from major investors and central banks from all over the world. If something goes wrong at Euroclear, it threatens to have radical consequences for the rest of the financial world. “I’ve been working here for almost 32 years,” Urbain said. ‘I won’t say every day was easy. But we have built up a large and good team of skilled employees here. That makes the difference.’

Urbain’s job has not become easier since Russia invaded Ukraine two years ago. Immediately after the start of the war, the West decided to block the approximately 200 billion euros in Russian assets parked at Euroclear. That has enormous consequences. Because the dividends and coupon payments generated by the frozen Russian assets are not transferred to Russia, but are reinvested, Euroclear sees its profits increase quarter after quarter. In the first three months of this year alone, it extracted 1.6 billion euros in interest income from those frozen Russian assets. Euroclear sets this money aside as a buffer against financial and legal setbacks.

Meanwhile, a debate is raging in the West about what to do with those Russian assets. The European Commission is working on a plan to use profits from Russian assets to rebuild Ukraine. At the G7, the club of the world’s seven most important Western industrialized countries, a much more radical proposal is on the table: the US in particular is pushing to confiscate all Russian assets that have been frozen.

Valerie Urban: ‘The discussion about a European windfall-contribution – excuse me for my Franglais – has already progressed quite far. We hope that an agreement can be reached in the coming weeks. There is now talk about how much of our Russian profits can be used for the fund that Europe provides for aid to Ukraine. This would amount to 87 to 89 percent of those profits, after deduction of taxes and other costs. We want to set aside the rest of that money as a buffer to cover later legal costs.’

‘I would like to emphasize once again that with Euroclear we have no say in how that European fund will be used. The further away we are from the discussion about this, the better. Euroclear does not play an active role in those discussions.’

Urban: ‘We have a much more fundamental problem with that. Such an intervention could have major consequences not only for Euroclear. It leads to legal uncertainty for the entire European capital market. If foreign investors see that assets can suddenly be seized here, a financial Pandora’s box threatens to open. We already see that many central banks from other countries are following this file very closely. If the Russian assets held here were confiscated, they too would risk losing confidence in the EU. The dollar is incontourable as an international trading currency, but the euro is much less so. Large foreign players could then invest much less in Europe than now.’

Urban: ‘That happens occasionally, yes. As I said, we are not directly involved in the political negotiations. But as an institution that is critical to the financial system, we do share our experiences. We try to make the impact of some decisions clear. We invest a lot of time in those conversations. Although some things are still far too simplified in those discussions.’

Urban: ‘There are about a hundred lawsuits in Russia from local investors demanding their money back. We do not mention exact amounts, but the impact on Euroclear would be significant. In the event of a conviction, we simply return the positions that customers had taken with us. But on top of that there are fines and legal costs that are at our expense. In that case we have no choice but to pay. Precisely because we have to take many unknown factors into account, we will set aside the profits we make on Russian assets as a buffer. I am very grateful to our shareholders for going along with that reasoning.’

Urban: “We’re holding onto wood. But so far we have not had any cyber attacks. We have also invested heavily in security in recent years. Even when we develop new products and services, that is the first criterion that everything must meet.’

Urban: ‘We set out a new strategy for Euroclear two years ago, in which we want to build a larger ecosystem to connect investors and issuers. This can be done, for example, by including unlisted securities in our offering, helping financial institutions to better assess the needs of their customers through data analysis or making our platform more open to assets that are needed to make the transition to to finance a sustainable economy.’

Urban: ‘We are never completely incontourable. We also have competitors. Companies such as Clearstream or Allfunds are also keeping an eye on us. At the same time, some banks or fintech companies use artificial intelligence or blockchain technology to come up with certain solutions themselves. Such things may cost us market share in the long term, which also makes it necessary for us to continue to innovate.’