The Bank of England (BoE) published its approach to the monitoring of third-country systems designated under the Settlement Finality Regulations. In light of the UK’s withdrawal from the EU, the UK amended its legislation to enable third-country central counterparties, central security depositories, and payment systems, which are not subject to the UK law, to receive settlement finality designation within the UK. Any system previously covered by the EU Settlement Finality Directive, which submitted an application for permanent designation by June 30, 2021, continues to benefit from the UK’s settlement finality protection under the Temporary Designation Regime, which ends on December 31, 2023.
Once a system, not subject to the UK law, has been designated under the UK Settlement Finality Regulations, BoE will monitor that the system continues to meet the following requirements for designation:
- A system must have at least three institutions participating in the system, unless otherwise determined by BoE in any case where there are two institutions participating in the system and BoE considers that designation is required on the grounds of systemic risk; and be a system through which transfer orders are effected.
- A system must have adequate arrangements for the effective monitoring and enforcement of compliance with its rules
- A system operator must have financial resources sufficient for the proper performance of its functions
- A system operator must be able and willing to co-operate with the relevant UK supervisory and administrative authorities
- The rules of the non-UK law system must specify the point at which a transfer order takes effect as having been entered into the system; specify the point after which a transfer order may not be revoked by a participant or any other party; and prohibit the revocation by a participant or any other party of a transfer order
- The system must have default arrangements, which are appropriate for that system in all the circumstances
These requirements will be applied to each designated system when its application for permanent designation is approved. BoE also published notification requirements. The Settlement Finality Regulations require an operator of a designated system, not subject to the UK law, to notify BoE when it has made certain changes, including changes to default arrangements, within seven days; any rule changes related to matters dealt with in the Settlement Finality Regulations, within 14 days; and changes to UK membership of the designated system, within seven days. Under Article 10(2) of the Settlement Finality Regulations, BoE can ask a designated system to provide such information as is reasonably required to satisfy itself that the requirements for designation continue to be met and to verify in such manner as it may specify.
Related Link: Notification
Keywords: Europe, UK, Banking, Settlement Finality Regulation, Temporary Designation Regime, Central Counterparties, Brexit, Systemic Risk, BoE
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