Shearman & Sterling LLP | Financial Regulatory Developments Focus | Bank of England Updates Non-UK CSDs on Approach to Recognition Post-Brexit
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  • Bank of England Updates Non-UK CSDs on Approach to Recognition Post-Brexit
    10/25/2018
    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. Central Securities Depositories that have been identified as possibly requiring recognition to provide CSD services in the U.K. after Brexit. The Dear CEO letter provides more detail on the post-Brexit recognition of non-U.K. CSDs by the BoE and on the transitional regime that has been set out in the draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.

    The draft Regulations will operate to "onshore" the EU Central Securities Depositories Regulation. The BoE will be empowered 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 explains that, immediately after Brexit, the U.K.'s domestic recognition regime for non-U.K. CSDs will, in essence, be the same as the regime for third country recognition under the CSDR and that the BoE will review the framework in due course.

    The U.K. transitional regime introduced by the draft Regulations is similar to the CSDR's transitional regime for third country CSDs that are awaiting recognition. The U.K. regime will, subject to a notification requirement, enable non-U.K. CSDs providing CSD services in the U.K. prior to Brexit to use the transitional regime to continue to provide services in the U.K. for a limited period while awaiting the completion of the recognition process. CSDs that are eligible for the transitional regime are: (i) non-U.K. CSDs that are within the current third country transitional regime under CSDR; and (ii) EU CSDs that are authorized in the EU under the CSDR prior to Brexit. The BoE invites non-U.K. CSDs to reply to the Dear CEO letter to indicate that they intend to use the transitional regime. The reply should include information specified in the Dear CEO letter. The BoE will treat this as the required notification once the draft Regulations are in force.

    Non-U.K. CSDs can use the transitional regime until the recognition process is complete. They must, however, make an application for recognition within six months of an equivalence decision having been made.

    View the "Dear CEO" letter.

    View details of the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.

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

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