Shearman & Sterling LLP | Financial Regulatory Developments Focus | Bank of England Consults on Changes to FMI Rules and Onshored Binding Technical Standards for Brexit
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  • Bank of England Consults on Changes to FMI Rules and Onshored Binding Technical Standards for Brexit
    10/25/2018
    The Bank of England has published a consultation paper entitled "UK withdrawal from the EU: Changes to FMI rules and onshored Binding Technical Standards." The consultation forms part of a package of consultations, "Dear CEO" letters and other communications published by the BoE and the PRA on October 25, 2018.

    The consultation proposals cover:
    • the BoE's proposed fixes to deficiencies in the onshored Binding Technical Standards for which the BoE, as FMI supervisor, has responsibility under the Financial Regulators’ Powers, (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018;
    • the BoE's proposals to amend its FMI rules; and
    • the BoE's proposed approach to non-binding BoE materials after Brexit.

    The proposals in the consultation paper are relevant to the U.K. Financial Market Infrastructures (CCPs, central securities depositories and payment systems) regulated by the BoE, as well as market infrastructures and market participants more generally.

    Notable elements of the consultation are highlighted below.

    Binding Technical Standards

    The Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 gives the BoE responsibility, in its capacity as FMI competent authority, for correcting deficiencies in certain onshored Binding Technical Standards under the European Market Infrastructure Regulation and the Central Securities Depositories Regulation. The BoE notes that a number of BTS within the BoE's remit relating to EMIR and CSDR will need to be deleted since they become irrelevant or redundant in a U.K. context. The BoE's proposed changes to the remaining BTS largely follow the general approach set out in a separately published joint BoE/PRA consultation. This consultation highlights the areas where the BoE diverges from the general approach. These relate to:
    • EMIR Intragroup exemptions;
    • references to European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM);
    • geographical scope of CSDs contained in application information concerning groups; and
    • covered bonds.

    FMI Rule Amendments

    The BoE will need to amend two of the Recognised Clearing House Rules that contain references to EU legislation. The Recognised Clearing House Rules are legal instruments made by the BoE and made available on the BoE's website. A draft EU Exit Instrument effecting the changes is included in the consultation.

    Non-Binding BoE Materials

    The consultation includes a draft Supervisory Statement, entitled "Non-binding Bank materials relating to Financial Market Infrastructure Supervision: The Bank’s approach after the UK’s withdrawal from the EU," detailing how firms should interpret non-binding material after exit day. This includes Approach Documents, Policy statements, statutory statements of policy and procedure, guidance on the BoE's implementation of FMI-related EU requirements and other relevant material on the BoE’s financial market infrastructure supervision website.

    The BoE does not propose to make detailed amendments to these materials ahead of Brexit. The Supervisory Statement contains guidance on how such materials should be interpreted in the context of changes made to related legislation, the proposed amendments to FMI rules and the BoE's proposed amendments to BTS.

    Comments on the consultation are invited by January 2, 2019. The proposed changes will only take effect on exit day in a "no-deal" scenario, in which the U.K. exits the EU on March 29, 2019 without a transitional period agreed between the U.K. and the EU as part of a Withdrawal Agreement. If there is a transitional period, it is expected that the changes would take effect at the end of that period.

    View the consultation paper and appendices.

    View details of the joint consultation on the BoE/Prudential Regulation Authority's general approach to making changes to PRA rules and to Binding Technical Standards

    View details of the package of communications published on October 25, 2018

    View details of the BoE's approach to non-U.K. CSDs post-Brexit

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