Draft UK Legislation to Onshore EMIR 2.2 Published for Feedback
02/24/2020HM Treasury has published for feedback a draft statutory instrument to implement the revised provisions for CCPs in the European Market Infrastructure Regulation (known as EMIR 2.2.) into U.K. law once the Brexit implementation period ends (currently scheduled for December 31, 2020). HM Treasury is publishing the draft instrument to provide Parliament and stakeholders the opportunity to provide feedback on the proposed approach before the instrument is laid before Parliament. The draft instrument–Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020–is due to be laid before Parliament in the Spring.
EMIR 2.2 was published in the Official Journal of the European Union on December 12, 2019 and has applied directly across the EU since January 1, 2020. EMIR 2.2 introduced changes to the procedures and authorities involved in the authorization of CCPs and the requirements for the recognition of third-country CCPs. Many of the changes relevant to third-country CCPs can be analyzed as largely being a response to the U.K.'s decision to leave the EU. One of the main components of EMIR 2.2 is the introduction of categories of third country CCPs into:
- "Tier 1" CCPs (i.e. non-systemically important CCPs);
- "Tier 2" CCPs (i.e. systemically important CCPs), which will be subject to higher recognition requirements named "comparability", based on ongoing compliance with prudential requirements for EU CCPs, compliance with requirements of the CCP's central banks of issue for relevant currencies, and provision of a written statement by the CCP that it consents to ESMA's accessing its records, rather than "equivalence"; and
- Third-country CCPs that are too systemically important to continue providing services into the EU unless they are established in the EU (this is the EU's location policy).
In line with the U.K.'s approach to onshoring financial services legislation, HM Treasury intends to adopt EMIR 2.2 without any material policy changes, including as regards the controversial location policy. The draft Regulations will make amendments to existing U.K. legislation as well as U.K. EMIR and other EU Exit legislation to accommodate certain changes as a result of EMIR 2.2. The intention is to ensure that U.K. EMIR is still operable in the U.K. after the U.K. leaves the EU. In particular, the draft Regulations will:
- update the functions of the Bank of England to reflect the new third-country recognition requirements (U.K. EMIR already transfers the functions of the European Securities and Markets Authority to the Bank of England);
- transfer the power to place third-country CCPs into different tiers to the Bank of England;
- empower the Bank of England to make recommendations to HM Treasury as to whether any third-country CCP should be subject to the location policy; and
- update the Bank of England's powers within the CCP temporary transition regime so that it can assess those third-country CCPs that have already applied for recognition in line with the new EMIR 2.2 provisions before the end of the implementation period.
View the draft statutory instrument onshoring EMIR 2.2.
View the policy note.
View details of EMIR 2.2.
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