UK HM Treasury Consults on an Expanded Resolution Regime for CCPs
02/24/2021HM Treasury has opened a consultation seeking views on an expanded resolution regime for CCPs. The existing U.K. CCP recovery and resolution regime was established by the Financial Services Act 2012, which extended to CCPs (with modifications) the special resolution regime for banks and investment firms. Since then, there have been international and EU developments. In particular, the Financial Stability Board published guidance on financial resources for CCP resolution and the EU has published the EU CCP Recovery and Resolution Regulation. The U.K., when it was an EU member state, supported and helped develop the EU Regulation. HM Treasury is proposing to amend the U.K. regime to bring it into line with international standards and the proposals, bar a few technical exceptions, follow the EU Regulation. Responses to the consultation may be submitted until May 28, 2021.
The proposals include a range of measures that would grant the Bank of England, as resolution authority, the powers to stabilize a CCP to ensure that it can continue to provide its critical clearing services, prevent contagion across the financial system and ensure fair loss allocation between CCPs and clearing members. Among others, feedback is sought on the proposals to:
- grant the BoE powers to: (i) require a CCP to take steps to remove impediments to resolvability; (ii) temporarily limit or ban any equity compensation in severe circumstances; (iii) suspend termination rights; (iv) take control of the CCP; (v) direct a CCP to remove or replace directors or senior executives and appoint temporary managers; and (vi) perform a full or partial tear up of contracts to return the CCP to a matched book;
- give creditors of a CCP the right to compensation if they are left worse off in resolution than they would have been without any resolution action;
- require a CCP to hold a greater amount of capital to absorb losses (i.e. add to a CCP's skin in the game);
- give the BoE the power to conduct variation margin gains haircutting; and
- provide the BoE with powers to increase loss absorbing capacity through write down of unsecured liabilities and collecting cash contributions from clearing members.
The government is seeking feedback on the proposals set out in the consultation paper as well as on any issues relevant to the U.K.'s CCP recovery and resolution regime.
View the consultation on an expanded resolution regime for CCPs.
View details of the FSB's guidance on financial resources for CCP resolution.
View details of the EU CCP Recovery and Resolution Regulation.
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