EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012). The Decision (2020/1308) shall enter into force on the day following that of its publication in the Official Journal of the European Union. The Decision shall apply from January 01, 2021 and expire on June 30, 2022. In a separate statement, BoE welcomed the adoption of this equivalence decision on the future UK legal and supervisory framework for central counterparties.
BoE states that this decision will allow European authorities to finalize the remaining steps for recognition of UK central counterparties. This will enable UK central counterparties to continue to provide clearing services to their EU members and EU banks to continue meet their obligations to UK central counterparties. In the UK, HM Treasury and BoE have already put in place a temporary recognition regime for non-UK central counterparties. From January 01, 2021, this will enable EU central counterparties to continue to provide services in the UK. As part of the recognition process, BoE and ESMA have agreed on an updated Memoranda of Understanding regarding cooperation and information-sharing arrangements with respect to central counterparties. The MoU also takes effect from January 01, 2021.
The EC decision is intended to give financial market participants 18 months to reduce their exposure to UK central counterparties. The heavy reliance of the EU financial system on services provided by UK-based central counterparties raises important issues related to financial stability and requires the scaling down of EU exposures to these infrastructures. Therefore, EC strongly encourages the industry to work together in developing strategies that will reduce their reliance on UK central counterparties that are systemically important for EU. On January 01, 2021, UK will leave the Single Market and this temporary equivalence decision is intended to protect financial stability in EU.
Keywords: Europe, EU, UK, Banking, Securities, Brexit, CCPs, OTC Derivatives, Systemic Risk, Equivalence Regime, EMIR, Decision 2020/1308
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