Euroclear Warns of Risks in European Commission's Plan to Invest Frozen Russian Assets

Euroclear, a Brussels-based central securities depository, has expressed strong opposition to a European Commission proposal to invest frozen Russian assets into riskier financial instruments. The debate over the confiscation or repurposing of Russian state funds has been ongoing since Russia's full-scale invasion of Ukraine in 2022. The European Commission is exploring ways to generate more profit from the approximately €191 billion in immobilized Russian central bank funds held at Euroclear.

Valérie Urbain, the chief executive of Euroclear, has warned that investing these funds in riskier assets could expose the EU's financial system to increased legal, market, and geopolitical risks. She also raised concerns about the potential for "expropriation" of these assets, which could set a dangerous precedent. The European Central Bank's recent interest rate cuts have reduced the returns on safer reinvestments, prompting officials in Brussels to consider shifting toward riskier asset classes.

Euroclear has cautioned that such a move could create significant financial exposure and increase the liability not only for Euroclear but also for European markets in general. The institution is already operating under tight supervision and risk thresholds set by regulators, and shifting to a higher-risk strategy could breach those parameters. Urbain emphasized that any plan to take on riskier investments must come with safeguards to protect against potential restitution claims from the Russian central bank.

One of the proposals under consideration involves the creation of a special purpose vehicle (SPV), a separate legal entity to which the Russian central bank’s assets would be transferred. This SPV would then be free to pursue riskier investments, theoretically generating greater returns for Ukraine. However, Urbain cautioned that this method would lead to the "expropriation" of the assets from Euroclear without relieving it of the legal obligations to the Russian central bank. If restitution claims arise in the future, this could cause significant problems.

Euroclear is already facing significant legal exposure from its involvement in freezing Russian assets, with more than 100 lawsuits filed against the depository regarding those immobilized Russian funds. Russia has responded by confiscating around €33 billion in assets held by Euroclear clients at its Moscow counterpart. Urbain added that more Russian retaliation in various forms should be expected.

While the West has frozen an estimated €260 billion in Russian central bank assets globally, governments have generally refrained from outright seizure due to concerns over legal precedent, financial market stability, and retaliatory risks. Urbain reiterated that any plan to take on riskier investments must come with safeguards to protect against potential restitution claims from the Russian central bank.

Urbain also emphasized Euroclear’s commitment to strengthening the EU’s internal financial system. She expressed support for the European Union’s ongoing goal to integrate its fragmented capital markets, boost financing for businesses, and mobilize underutilized savings across member states. As part of this effort, Euroclear plans to launch a “single access point” that would allow both retail and institutional investors to operate more seamlessly across the bloc’s 27 member nations. “We want to contribute to the development of an integrated European capital market,” Urbain said.