The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013

Made: 6th March 2013

Laid before Parliament: 7th March 2013

Coming into force in accordance with regulation 1(2)

The Treasury and the Secretary of State make the following Regulations in exercise of the powers conferred by sections 158(4) and (5), 174(2) to (4), 185 and 186(1) of the Companies Act 1989[^f00006] and now vested in them jointly[^f00007].

PART 1 — Citation, commencement and interpretation

Citation and commencement

1

• (1) These Regulations may be cited as the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013.

• (2) These Regulations come into force on 1st April 2013, immediately after section 6 of the Financial Services Act 2012 comes fully into force.

Interpretation

2

• (1) In these Regulations—

• “the Act” means the Financial Services and Markets Act 2000;

• “the 1989 Act” means the Companies Act 1989;

• “the Bank” means the Bank of England;

• “central counterparty” means a body corporate or unincorporated association which interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer;

• “clearing”, in relation to a central counterparty, means the process of establishing positions, including the calculation of net obligations and ensuring that financial instruments, cash, or both, are available to secure the exposures arising from those positions; and “clearing services”, in relation to a central counterparty, is to be read accordingly;

• “the EMIR regulation” has the meaning given in section 313 of the Act;

• “recognised central counterparty” means a central counterparty in relation to which a recognition order under Part 18 of the Act is in force.

• (2) Except as provided by paragraph (1)—

• (a) any expression used in these Regulations which is defined for the purposes of the EMIR regulation has the meaning which it has in that Regulation; and

• (b) any other expression used in these Regulations which is defined for the purposes of the Act has the meaning given by the Act.

PART 2 — Amendments to the Financial Services and Markets Act 2000

Amendments to the Financial Services and Markets Act 2000

3

• (1) The Act is amended as follows.

• (2) In section 55G(3)(a)[^f00009] (giving permission: special cases), for “section 285(2) or (3)” substitute “any of subsections (2) to (3C) of section 285”.

• (3) In section 285[^f00010] (exemption for recognised investment exchanges and clearing houses)—

• (a) in subsection (1), for paragraph (b) and the “and” immediately before it substitute—

(b) “recognised clearing house” means— (i) a central counterparty in relation to which a recognition order is in force (in this Part referred to as a “recognised central counterparty”), or (ii) a clearing house which provides clearing services in the United Kingdom without doing so as a central counterparty, and in relation to which a recognition order is in force; (c) “EEA central counterparty” means a person established in an EEA State other than the United Kingdom who has been authorised by the competent authority of that State as a central counterparty pursuant to Article 17 of the EMIR regulation; and (d) “third country central counterparty” means a person established in a State which is not an EEA State who has been recognised by ESMA as a central counterparty pursuant to Article 25 of the EMIR regulation.

• (b) in subsection (3) for “A recognised clearing house” substitute “A recognised clearing house which is not a recognised central counterparty”;

• (c) after subsection (3) insert—

(3A) A recognised central counterparty is exempt from the general prohibition as respects any regulated activity which is carried on for the purposes of, or in connection with, the services or activities specified in its recognition order. (3B) An EEA central counterparty is exempt from the general prohibition as respects any regulated activity which is carried on for the purposes of, or in connection with, the services or activities specified in its authorisation granted pursuant to Article 17 of the EMIR regulation. (3C) A third country central counterparty is exempt from the general prohibition as respects any regulated activity which is carried on for the purposes of, or in connection with, the services or activities specified in its recognition by ESMA pursuant to Article 25 of the EMIR regulation.

• (4) In section 285A[^f00011] (powers exercisable in relation to recognised investment exchanges and clearing houses), in subsection (3)(c), for “UK clearing houses” substitute “recognised clearing houses”.

• (5) In section 288[^f00012] (application by a clearing house)—

• (a) for subsection (1) substitute—

(1) A body corporate or unincorporated association which is established in the United Kingdom may, where it intends to provide clearing services as a central counterparty, apply to the Bank of England in accordance with Article 17 of the EMIR regulation for an order granting authorisation for the purposes of that Article and declaring it to be a recognised central counterparty for the purposes of this Act. (1A) A body corporate or unincorporated association may, where it intends to provide clearing services in the United Kingdom without doing so as a central counterparty, apply to the Bank of England for an order declaring it to be for the purposes of this Act a recognised clearing house which is not a recognised central counterparty.

• (b) in subsection (2), for “The application” substitute “An application under subsection (1A)”.

• (6) In section 289[^f00013] (applications: supplementary), after subsection (3) insert—

(4) In relation to an application under section 288(1), this section does not apply to information which can be required under Article 17 of the EMIR regulation.

• (7) In section 290[^f00014] (recognition orders)—

• (a) for subsection (1) substitute—

(1) If it appears to the appropriate regulator that the applicant satisfies the recognition requirements applicable in its case, the regulator may— (a) where the application is made under section 287, make a recognition order declaring the applicant to be a recognised investment exchange; (b) where the application is made under section 288(1) and Article 17 of the EMIR regulation allows authorisation to be granted, make a recognition order (“a central counterparty recognition order”) granting authorisation for the purposes of that Article and declaring the applicant to be a recognised central counterparty; or (c) where the application is made under section 288(1A), make a recognition order declaring the applicant to be a recognised clearing house which is not a recognised central counterparty.

• (b) after subsection (1C) insert—

(1D) A central counterparty recognition order must specify the services or activities linked to clearing which the applicant may provide or perform and the classes of financial instruments covered by the order.

• (c) in subsection (3) after “an application”, insert “made under section 287 or 288(1A)”;

• (d) in subsection (5), after “recognition order”, insert “in respect of an investment exchange or a clearing house which is not a central counterparty”;

• (e) after subsection (5) insert—

(7) Where— (a) a body corporate or unincorporated association has made an application under section 288(1), and (b) the Bank of England has determined that application in accordance with Article 17 of the EMIR regulation, any previous recognition order under section 290(1)(c) or 292(2)(b) shall cease to be valid.

• (8) After section 290 insert—

(290ZA) (1) On an application made to it in accordance with Article 15 of the EMIR regulation, the Bank of England may in accordance with Article 17 of that regulation vary a central counterparty recognition order by specifying an additional service or activity or class of financial instruments. (2) Where Article 20(5) of the EMIR regulation applies, the Bank of England may vary a central counterparty recognition order by removing a service or activity or class of financial instruments from those specified in the order. (3) The Bank of England may at any time vary a central counterparty recognition order for the purpose of correcting an error in, or omission from, the order.

• (9) In section 290A[^f00015] (refusal of recognition on ground of excessive regulatory provision), for subsection (6) substitute—

(6) This section does not apply to an application for recognition as an overseas investment exchange, an overseas clearing house or a recognised central counterparty.

• (10) In section 292[^f00016] (overseas investment exchanges and overseas clearing houses)—

• (a) in subsection (1), for “288” substitute “288(1A)”;

• (b) in subsection (2)(b) after “recognised clearing house” insert “which is not a central counterparty”;

• (c) after subsection (5) insert—

(6) Where a recognised clearing house is authorised as an EEA central counterparty or recognised as a third country central counterparty, any previous recognition order under section 290(1)(c) or 292(2)(b) shall cease to be valid.

• (11) In section 296A[^f00017] (additional power to direct UK clearing houses)—

• (a) in the heading, for “UK clearing houses” substitute “recognised central counterparties”;

• (b) in subsection (1)—

• (i) for “UK clearing house” substitute “recognised central counterparty”;

• (ii) in paragraph (c) omit “central counterparty”;

• (c) in subsections (1) to (4), in each place, for “clearing house” substitute “recognised central counterparty”.

• (12) In section 297[^f00018] (revoking recognition)—

• (a) in subsection (1), after “recognition order” insert “in respect of a recognised investment exchange or in respect of a recognised clearing house which is not a recognised central counterparty”;

• (b) after subsection (1) insert—

(1A) A central counterparty recognition order may be revoked by an order made by the Bank of England in accordance with Article 20 of the EMIR regulation.

• (c) in subsection (2), after “recognised body” insert “which is not a recognised central counterparty”;

• (d) in subsection (2A), after “recognised body” insert “which is not a recognised central counterparty”.

• (13) In section 300E[^f00019] (power to disallow excessive regulatory provision: supplementary), in subsection (3), for “or overseas clearing house” substitute “, overseas clearing house or recognised central counterparty”.

• (14) In section 313[^f00020] (interpretation of Part 18), in subsection (1)—

• (a) insert at the appropriate places—

• “central counterparty” means a body corporate or unincorporated association which interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer;
• “central counterparty recognition order” means a recognition order made under section 290(1)(b);
• “clearing”, in relation to a central counterparty, means the process of establishing positions, including the calculation of net obligations and ensuring that financial instruments, cash, or both, are available to secure the exposures arising from those positions; and “clearing services”, in relation to a central counterparty, is to be read accordingly;
• “the EMIR regulation” means Regulation (EU) 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories[^f00021], and any reference to the requirements contained in that Regulation includes a reference to requirements contained in any directly applicable EU regulation made under its provisions;
• “recognised central counterparty” has the meaning given in section 285;

• (b) for the definition of “overseas clearing house” substitute—

• “overseas clearing house” means a body corporate or association which is not a central counterparty and has neither its head office nor its registered office in the United Kingdom and in relation to which a recognition order is in force;

• (c) omit the definitions of “central counterparty clearing services” and “UK clearing house”.

• (15) In section 417 (definitions), in subsection (1), in the definition of “exempt person”, for “section 285(2) or (3)” substitute “any of subsections (2) to (3C) of section 285”.

• (16) In Schedule 17A[^f00022] (further provision in relation to the exercise of Part 18 functions by the Bank of England)—

• (a) in paragraph 11(2)—

• (i) at the end of paragraph (b) omit “and”;

• (ii) at the end of paragraph (c), insert—

; and (d) information or documents reasonably required in connection with the exercise by the Bank of its functions under the EMIR regulation.

• (b) in paragraph 18(2), after “statutory provision” insert “or the EMIR regulation”;

• (c) in paragraph 19(2)(a), after “statutory provision” insert “or the EMIR regulation”;

• (d) at the end of paragraph 23 insert “or any of its functions under the EMIR regulation”;

• (e) in the heading of Part 3, for “UK clearing houses” substitute “recognised clearing houses”;

• (f) in paragraph 34, in each place, for “UK clearing house” substitute “recognised clearing house”;

• (g) in paragraph 35—

• (i) in sub-paragraph (1) for “UK clearing house” substitute “recognised clearing house”;

• (ii) in sub-paragraph (2)(c) omit “central counterparty”;

• (h) in paragraph 36—

• (i) in sub-paragraph (1) after “recognised clearing houses” insert “, EEA central counterparties or third country central counterparties”;

• (ii) at the end of sub-paragraph (2)(a) omit “and”;

• (iii) at the end of sub-paragraph (2)(b) insert—

, and (c) its functions under or as a result of Part 7 of the Companies Act 1989.

PART 3 — Amendments to the Companies Act 1989

Amendments to the Companies Act 1989

4

• (1) The 1989[^f00023] Act is amended as follows.

• (2) In section 155 (market contracts)[^f00024]—

• (a) for subsection (1) substitute—

(1) In this Part— (a) “clearing member client contract” means a contract between a recognised central counterparty and one or more of the parties mentioned in subsection (1A) which is recorded in the accounts of the recognised central counterparty as a position held for the account of a client, an indirect client or a group of clients or indirect clients; (b) “clearing member house contract” means a contract between a recognised central counterparty and a clearing member recorded in the accounts of the recognised central counterparty as a position held for the account of a clearing member; (c) “client trade” means a contract between two or more of the parties mentioned in subsection (1A) which corresponds to a clearing member client contract; (d) “market contracts” means the contracts to which this Part applies by virtue of subsections (2) to (3).

• (b) after subsection (1) insert—

(1A) The parties referred to in subsections (1)(a) and (c) are— (a) a clearing member; (b) a client; and (c) an indirect client.

• (c) after subsection (2A) insert—

(2B) In relation to transactions which are cleared through a recognised central counterparty, this Part applies to— (a) clearing member house contracts; (b) clearing member client contracts; (c) client trades, other than client trades excluded by subsection (2C); and (d) contracts entered into by the recognised central counterparty with a recognised investment exchange or a recognised clearing house for the purpose of providing central counterparty clearing services to that exchange or clearing house. (2C) A client trade is excluded by this subsection from subsection (2B)(c) if— (a) the clearing member which is a party to the clearing member client contract corresponding to the client trade defaults; and (b) the clearing member client contract is not transferred to another clearing member within the period specified for this purpose in the default rules of the recognised central counterparty.

; and

• (d) in subsection (3) after “In relation to a recognised clearing house” insert “which is not a recognised central counterparty,”.

• (3) After section 155 insert—