Shearman & Sterling LLP | Financial Regulatory Developments Focus | Bank of England Updates Non-UK CCPs on Approach to Recognition Post-Brexit
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  • Bank of England Updates Non-UK CCPs on Approach to Recognition Post-Brexit
    The Bank of England has published a "Dear CEO" letter sent by Sir John Cunliffe, Deputy Governor, Financial Stability, to the Chief Executive Officers of non-U.K. CCPs to provide more detail on the post-Brexit recognition of non-U.K. CCPs and the temporary permissions regime that will give temporary deemed recognized status to eligible non-U.K. CCPs.

    The BoE wrote to the CEOs of non-U.K. CCPs in December 2017, outlining that forthcoming U.K. legislation would give it a new power to recognize non-U.K. CCPs and that it anticipated that, in the period immediately after Brexit, the recognition regime for non-U.K. CCPs would be materially the same as the third country recognition regime under the European Market Infrastructure Regulation, but might be reviewed later. In an update in March 2018, the BoE confirmed that non-U.K. CCPs already providing services in the U.K. should be able to continue to do so until the end of the envisaged transitional, or "implementation" period after Brexit.

    This latest letter to non-U.K. CCPs provides an update following the laying before Parliament, in July 2018, of the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018. Subject to Parliamentary scrutiny, these Regulations are expected to enter into force during Q4 2018, establishing the post-Brexit framework for non-U.K. CCP recognition. The letter outlines actions non-U.K. CCPs will need to take once the Regulations are in force.

    The Regulations will empower the BoE to receive applications for recognition (both prior to and after Brexit) and to assess and make decisions on recognition that will take effect after Brexit. The Dear CEO letter sets out, in an Annex, a list of the information that should be included in an application for recognition by a non-U.K. CCP. This is materially the same as the information needed for the third country recognition application process under EMIR. An application fee of £35,000 has been proposed in a separately published consultation.

    Recognition of a non-U.K. CCP is contingent on several factors:
    • a determination must have been made by HM Treasury that the legal and supervisory arrangements of the non-U.K. CCP's home regime are equivalent to the U.K. regime;
    • there must be effective supervision and enforcement of CCPs in the non-U.K. CCP's home jurisdiction;
    • cooperation arrangements must be in place between the relevant authorities; and
    • the CCP must not be established in a jurisdiction classified as high risk in the U.K. anti-money laundering and counter-terrorist financing framework.

    The Regulations will also establish a Temporary Recognition Regime for non-U.K. CCPs, allowing eligible non-U.K. CCPs to be deemed to be recognized and to continue to provide clearing services in the U.K. for a period of up to three years after Brexit. Non-U.K. CCPs deemed to be recognized under the regime will be listed on the BoE's website. The duration of the TRR is extendable by twelve-month increments under certain circumstances by HM Treasury. Eligibility criteria are set out in the Annex to the Dear CEO letter. Non-U.K. CCPs wishing to enter the TRR must, before Brexit, either notify the BoE or submit an application for recognition and provide certain information. They must also submit their application for actual recognition on a time frame agreed with the BoE. The BoE will make further information available on the notification procedure after the Regulations come into force.

    The BoE invites non-U.K. CCPs to approach it if they require further guidance.

    View the "Dear CEO" letter.

    View the BoE consultation on fees for non-U.K. CCP recognition applications.

    View details of the BoE's December 2017 "Dear CEO" letter to non-U.K. CCPs and March 2018 update.

    View details of the BoE's July 2018 "Dear CEO" letter to operators of systems designated under the Settlement Finality Directive.

    View details of the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018.

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