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February 25, 2019

The UK and U.S. authorities published a joint statement on continuity of derivatives trading and clearing activities between the UK and the U.S., after Brexit. Both the authorities from the UK and the U.S. are taking measures to ensure that the withdrawal of the UK from EU, in whatever form it takes, will not create regulatory uncertainty regarding derivatives market activity between the UK and the U.S. These measures will help support financial stability and the sound functioning of financial markets. They will also give confidence to market participants about their ability to trade and manage risk through these markets.

BoE, FCA, and CFTC, as the relevant regulators of the UK and the U.S. derivatives markets, reaffirm their commitment to close cooperation and, with support from HM Treasury, have agreed to coordinate on the following measures, where necessary to provide continuity, by the end of March 2019:

  • Continued supervisory cooperation. BoE, FCA, and CFTC have in place information-sharing and cooperation arrangements to support the effective cross-border oversight of derivatives markets and participants and to promote market orderliness, confidence, and financial stability. As part of this:
  • BoE and CFTC are in the process of updating, in connection with the UK’s forthcoming recognition of CFTC-registered central counterparties (CCPs), their Memorandum of Understanding (MoU) on clearing activity, which was originally signed in 2009.
  • FCA and CFTC are in the process of updating their MoUs covering certain firms in the derivatives and the alternative investment funds industry. These MoUs were originally signed in 2013 and 2016.
  • Extension of existing CFTC relief and comparability for the UK. CFTC intends that the existing regulatory relief granted by CFTC to EU firms, including UK firms, will be extended to UK firms at the point of Brexit by means of the following measures:
  • CFTC staff will issue new no-action letters to UK market participants confirming the continued application of existing no-action letters directed at EU market participants.
  • CFTC intends to grant new substituted compliance and exemption orders to confirm that existing orders directed at EU also will be accompanied by new orders directed at UK. These orders will permit firms to satisfy certain CFTC entity-level and transaction-level requirements and margin requirements for uncleared swaps by complying with the relevant UK laws and to satisfy CFTC trade execution requirements by using eligible UK trading venues.
  • CFTC also confirmed that UK CCPs currently registered with CFTC will be able to continue providing services in the U.S. on the same basis they do now.
  • UK equivalence for U.S. UK authorities have confirmed that the U.S. trading venues, firms, and CCPs will be able to continue providing services in UK. The basis on which these trading venues, firms, and CCPs currently provide services in EU and to EU firms is the result of various decisions taken by EC in declaring the CFTC regulatory framework as equivalent. UK firms will continue to be able to access these entities on the same basis as EU firms do today by means of the following measures:
  • HM Treasury has confirmed that the decisions of EC declaring CFTC regulatory framework equivalent in relation to risk-mitigation requirements, including margin requirements for uncleared derivatives, and in relation to trading venues, will continue to apply as a matter of UK law after the withdrawal of UK from EU.
  • HM Treasury, BoE, and CFTC are cooperating closely on the process of making equivalence and recognition decisions in relation to CFTC-registered CCPs. Also, BoE has confirmed that, if UK withdraws from EU with no deal, U.S. CCPs will be able to continue providing services in UK and to UK firms on the same basis as they do now using the UK’s "temporary recognition regime" for non-UK CCPs.


Related Link: Press Release

Keywords: Americas, Europe, UK, US, Banking, Securities, Brexit, Derivatives Trading, CCP, OTC Derivatives, Central Clearing, CFTC, FCA, BoE 

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