The Bank of England has raised serious doubts over whether it will join the European Central Bank's Target2-Securities (TS2) integrated settlement system.
The pan-European system would connect all clearing networks in the euro zone into a single platform, extending the payments system used for central bank operations to cover securities settlements.
The ECB believes an integrated securities settlement infrastructure in the euro zone could cut settlement costs by up to 90%.
Although the UK is not in the euro, the ECB has proposed that the settlement of sterling-denominated securities should also transfer from Euroclear UK & Ireland to T2S.
But in a letter to the ECB executive board member Gertrude Tumpel-Gugerel, Bank of England executive director and chief cashier, Andrew Bailey, has raised concerns over the governance and cost involved in the project.
"The overall summary of our assessment is that while there may be a case for a more integrated approach to securities settlement across Europe (going beyond euro-denominated securities), a number of very important issues require further careful consideration," says Bailey.
He warns that "we would not be content" with sterling settlement being part of a system under the control of the ECB's governing council.
Instead "we would require a very clear arrangement that provides for the Bank and UK users to exercise direct control over sterling settlement in T2S".
Bailey also warns that the Bank of England need more information on the cost implications of sterling settlement within T2S and how it compares with the Euroclear offering.
"In short, we need to understand how migrating sterling settlement to T2S will enable all users here, including solely domestic ones, to achieve cost reductions," says the letter.
Read the letter here