Regulators Welcome EC’s Recognition of UK CCPs

The Bank of England, European Securities and Markets Authority (ESMA), and the US Commodity Futures Trading Commission (CFTC) have all welcomed the decision by the European Commission (EC) to adopt a temporary equivalence regime for central counterparties (CCPs) and Central Securities Depositories (CSDs).

ESMA says it supports continued access to UK CCPs, in order to limit the risk of disruption in central clearing and to avoid any negative impact on the financial stability of the EU. It adds it aims to recognise UK CCPs in a timely manner, as long as four recognition conditions under Article 25 of EMIR are met. The four are the formal adoption of an equivalence decision by the EC; that UK-domiciled CCPs are authorised in the UK and are subject to effective supervision and enforcement ensuring full compliance with the prudential requirements applicable therein; the establishment of cooperation arrangements between ESMA and the BoE; and that the UK is not on the list of third-country jurisdictions which have strategic deficiencies in their anti-money laundering and countering the financing of terrorism regimes.

ESMA also says it supports continued access to the UK CSD in order to allow it to serve Irish securities and to avoid any negative impact on the Irish securities market.

Elsewhere, in a statement the Bank of England also welcomed the announcement, saying, “The implementing acts adopted by the Commission are necessary to allow UK CCPs and CSDs to be recognised by ESMA. In a no-deal Brexit scenario they would come into effect from 30 March 2019. Recognition would allow UK CCPs to continue to provide clearing services to their EU members, and EU banks to meet their obligations to UK CCPs. 

“Today’s announcement is a crucial and positive step,” it continues. “It provides necessary clarity and addresses one of the most important financial stability risks associated with the UK’s withdrawal from the EU. It also enables UK CSDs to be recognised so that they can continue providing notary and settlement services for securities issued under EU law.

“In the UK, HM Treasury and the Bank of England have already put in place a temporary recognition regime for non-UK CCPs and a transitional regime for non-UK CSDs,” the BoE adds. “These will enable EU CCPs and CSDs to continue to provide services in the UK in a no-deal Brexit scenario.”

It concludes by stressing that the practical arrangements to implement these equivalence decisions now need to be put in place. This includes agreeing the necessary cooperation and information-sharing arrangements between the Bank and ESMA. “The Bank has already confirmed to ESMA that it will provide information in line with its current obligations and those set out in the equivalence decisions,” it says.

The decision was also welcomed by CFTC chairman Christopher Giancarlo. He says is a statement, “The CFTC welcomes the European Commission’s adoption of an equivalence decision regarding the United Kingdom’s legal and supervisory arrangements for central clearinghouses. The CFTC also welcomes the additional statement by the European Securities and Markets Authority of its intention to complete the recognition of UK CCPs pursuant to the EC’s equivalence decision in a timely manner. Together the equivalence decision of the EC and the final recognition decisions of ESMA will permit EU market participants to continue clearing through UK CCPs for 12 months as of March 30, 2019 in the case of a UK exit from the European Union without a transition period.

“The EC’s decision and ESMA’s announcement to complete the relevant recognition decisions represent concrete steps to protect global financial stability and mitigate market fragmentation by providing market participants with important legal and regulatory certainty to manage their operations after Brexit,” he adds. “These steps are commendable, and their implementation merits strong support.”

Colin Lambert

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