ISDA and 13 other financial services trade associations wrote a letter to EC Vice President Valdis Dombrovskis to highlight the need for an urgent extension to the temporary equivalence determination for UK central counterparties (CCPs). The signatories of the letter argued that without a seamless ability to continue to clear transactions across borders in the event of a no-deal, Brexit will have a significant impact on companies and on the safety and soundness of the financial system. The current temporary equivalence expires on March 30, 2020. The letter urged EC to confirm that it intends to extend the temporary recognition as soon as possible and in any event well in advance of the end of December 2019.
Without the extension, EU clearing members would not be able to continue as direct members of UK CCPs in the event of a no-deal Brexit and EU counterparties would not be able to clear derivatives subject to the clearing obligation on those CCPs. The date of Brexit has been extended until January 31, 2020. Despite the significant work that firms have done to prepare, the reasons for granting temporary recognition still exist and a post-Brexit extension of only two months is unlikely to be sufficient to mitigate the potential risk of disruption to EU clearing services.
The letter requested EC to extend the temporary equivalence for UK CCPs until the new framework for recognition of non-EU CCPs under European Market Infrastructure Regulation (EMIR) 2.2 has become applicable and ESMA has completed its review of the existing recognition decisions. It is important for EC to provide this certainty in a timely fashion, for the purpose of maintaining financial stability in the event of a "No Deal" Brexit. This is also an important bridging measure to ensure that the transitional, anti-disruption protections for EU counterparties, which have been negotiated under EMIR 2.2, will be available in the event that the UK is not ultimately found to be equivalent or in the event that UK CCPs are not able to obtain recognition. The trade associations that signed the letter include the Association of Financial Markets in Europe, the Alternative Investment Management Association, the European Banking Federation, and the European Fund and Asset Management Association.
Keywords: International, Europe, UK, Banking, Securities, Brexit, CCPs, EMIR2, FMI, Equivalence Regime, FMI, ISDA
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