Euroclear warns ECB against investing frozen Russian assets

Euroclear has issued a warning to the European Commission regarding its plans to invest frozen Russian assets into riskier investments.

The debate over confiscating or repurposing Russian state funds has raged across Western capitals since Russia’s full-scale invasion of Ukraine in 2022. Now, the EU is exploring riskier investment options to increase the profit gained from these frozen state funds.

Euroclear warns ECB against investing frozen Russian assets

Euroclear, the Brussels-based central securities depository that holds the majority of frozen Russian central bank assets, has raised strong objections to a European Commission plan to reroute proceeds from those assets into riskier investments.

The institution’s chief executive, Valérie Urbain, told the Financial Times that such a move could expose the EU’s financial system to increased legal, market, and geopolitical risks while potentially constituting what she called an “expropriation.”

The European Commission has been considering ways to raise more money for Ukraine by reinvesting cash flows generated from the roughly €191B in immobilized Russian central bank funds held at Euroclear.

However, as the European Central Bank (ECB) cut interest rates, the returns on these safer reinvestments declined, prompting officials in Brussels to propose a shift toward riskier asset classes.

Euroclear has warned that such a change could create significant financial exposure and set a dangerous precedent.

“If you increase the revenues, you increase the risks. And so, who is bearing that risk?” Urbain asked.

She emphasized that any move toward riskier reinvestments would significantly increase the liability not only for Euroclear but also for European markets in general. She warned that 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.

“The systemic risk would certainly dramatically increase if we would have to go beyond the risk profile that we have and which is authorised by our supervisors,” she said.

Legal hurdles for the investment

One of the proposals under consideration for investing these Russian funds involves the creation of a special purpose vehicle (SPV). This will be 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.

Urbain cautioned that the method would lead to “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 a problem.

“Legally speaking, the creation of an SPV would mean an expropriation of the cash from Euroclear,” she said. “Clearly [this is] a position that we cannot bear.”

Euroclear is already facing significant legal exposure from its involvement in freezing Russian assets. More than 100 lawsuits have been filed against the depository regarding those immobilized Russian funds, including those held by sanctioned individuals and entities.

According to sources close to Euroclear, Russia has responded by confiscating around €33B in assets held by Euroclear clients at its Moscow counterpart.

“We should also certainly expect more Russian retaliation in all sorts of forms,” Urbain added.

While the West has frozen an estimated €260B 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. “In case of any call for restitution from the central bank of Russia, the assets are gone — somebody is covering for the amount,” she said.

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.

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