The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018

Made: 13th November 2018

Coming into force in accordance with regulation 1(2) and (3)

The Treasury, in exercise of the powers conferred by sections 8(1) and 8(2)(a), (b), (d) and (g) of, and paragraph 1 of Schedule 4 and paragraph 21 of Schedule 7 to, the European Union (Withdrawal) Act 2018 , makes the following Regulations.

In accordance with paragraph 1(1) and (2) of Schedule 7 to the European Union (Withdrawal) Act 2018, a draft of this instrument has been laid before, and approved by a resolution of, each House of Parliament.

PART 1 — Introduction

Citation, commencement and interpretation

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• (1) These Regulations may be cited as the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018.

• (2) Parts 2 to 5 of these Regulations come into force on exit day.

• (3) This Part and Part 6 of these Regulations come into force the day after the day on which they are made.

• (4) In these Regulations—

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

• “central counterparty” has the meaning given in section 313(1) (interpretation of Part 18) of the 2000 Act.

• “the EMIR Regulation” means Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories as it forms part of assimilated law.

PART 2 — Amendment of primary legislation

Amendment of the 2000 Act

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The 2000 Act is amended as follows.

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• (1) Section 285 (exemption for recognised bodies) is amended as follows.

• (2) In subsection (1)—

• (a) omit paragraph (c) ; and

• (b) for paragraph (d) substitute—

(d) “third country central counterparty” means a person established in a country other than the United Kingdom who has been recognised by the Bank of England as a central counterparty pursuant to Article 25 of the EMIR Regulation;

• (3) Omit subsection (3B) .

• (4) In subsection (3C) , for “ESMA” substitute “ the Bank of England ”.

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In section 292(6) (overseas clearing houses) , omit “authorised as an EEA central counterparty or”.

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In Schedule 17A (further provision in relation to the exercise of Part 18 functions by Bank of England) —

• (a) in paragraph 22, after “recognised clearing house” insert “ , third country central counterparty ”;

• (b) in paragraph 32, after “recognised clearing houses,” insert “ third country central counterparties, ”;

• (c) in paragraph 33, in sub-paragraph (a), after “recognised clearing houses,” insert “ third country central counterparties, ”; and

• (d) in paragraph 36, in sub-paragraph (1), omit “EEA central counterparties,”.

PART 3 — Amendment of the EMIR Regulation

Introduction to amendment of the EMIR Regulation

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The EMIR Regulation is amended in accordance with this Part.

Definitions

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In Article 2, after point (31) insert—

(32) ‘third country’ means a country other than the United Kingdom; (33) ‘working day’ means any day other than— (a) Saturday or Sunday, (b) Christmas Day or Good Friday, or (c) a day which is a bank holiday under the Banking and Financial Dealings Act 1971 in any part of the United Kingdom; (34) ‘FCA’ means the Financial Conduct Authority; (35) ‘PRA’ means the Prudential Regulation Authority.

Recognition of a third country CCP

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART 4 — Revocation of Level 2 Legislation

Revocation of implementing acts made under Article 25.6 of the EMIR Regulation

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Any implementing acts which have been adopted by the European Commission under Article 25.6 of the EMIR Regulation and are in force immediately before IP completion day are revoked.

PART 5 — Disapplication of continuation of existing acts, etc.

Disapplication of ESMA recognition decisions

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Paragraph 37(1) of Schedule 8 to the European Union (Withdrawal) Act 2018 does not apply to a decision by the European Securities and Markets Authority to recognise a central counterparty under Article 25 of the EMIR Regulation where that decision is in force immediately before IP completion day.

PART 6 — Transitional provisions

Interpretation

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In this Part—

• “applicant” means a person who has submitted an application under regulation 12(1);

• “clearing” has the meaning given in section 313(1) of the 2000 Act; and “clearing services”, in relation to a central counterparty, is to be read accordingly;

• “clearing member” means an undertaking which participates in a central counterparty and which is responsible for discharging the financial obligations arising from that participation;

• “client” means an undertaking with a contractual relationship with a clearing member of a central counterparty which enables that undertaking to clear its transactions with that central counterparty;

• “competent authority” means a regulatory authority which is responsible for the authorisation and supervision of central counterparties in its territory; and

• “third country” means a country other than the United Kingdom.

Application for deemed recognition pursuant to Article 25 of the EMIR Regulation

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• (1) A central counterparty established in a third country may apply to be recognised by the Bank of England where it intends to provide clearing services as a central counterparty in the United Kingdom on and after IP completion day.

• (2) The application must—

• (a) be submitted before IP completion day;

• (b) be made in such manner as the Bank of England may direct;

• (c) specify the services or activities linked to clearing which the applicant intends to provide and the classes of financial instrument in respect of which the applicant wishes to be recognised; and

• (d) be accompanied by such other information as the Bank of England may direct.

• (3) The Bank of England must confirm promptly receipt of the application to the person making it.

• (4) The applicant may withdraw the application by giving notice to the Bank of England at any time before the application is determined.

• (5) Where the application has not been determined by the Bank of England before IP completion day, the application is to be treated on IP completion day as if it had been made on that day under Article 25.4 of the EMIR Regulation.

Deemed recognition pursuant to Article 25 of the EMIR Regulation

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• (1) The Bank of England may before IP completion day determine that the applicant is to be taken, on and after IP completion day, to be recognised pursuant to Article 25 of the EMIR Regulation if each of the following conditions are met.

• (2) The first condition is that the Treasury has made regulations in respect of the country in which the applicant is established in accordance with regulation 14.

• (3) The second condition is that the applicant is—

• (a) authorised in the country in which it is established, and

• (b) subject to effective supervision and enforcement ensuring full compliance with the prudential requirements applicable in that country.

• (4) The third condition is that the Bank of England has established co-operation arrangements with the competent authority responsible for supervising the applicant in accordance with regulation 16.

• (5) The fourth condition is that the applicant is not established or authorised in a country that is considered, by the Commission in accordance with Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing , as having strategic deficiencies in its national anti-money laundering and counter financing of terrorism regime that poses significant threats to the financial system of the European Union.

• (5A) The fifth condition is that the applicant has not been determined as systemically important or likely to become systemically important in accordance with regulation 13A and is therefore a Tier 1 CCP.

• (6) A determination under paragraph (1) must only be made in respect of the services or activities linked to clearing and must specify the services or activities which the applicant is to be taken to be recognised to provide or perform including the classes of financial instruments in respect of which the applicant is to be taken to be recognised.

• (7) Where the Bank of England makes a determination under paragraph (1), the applicant in respect of which the determination is made is to be taken to be recognised pursuant to Article 25 of the EMIR Regulation in accordance with that decision.

Power to make regulations in respect of third countries' regulatory frameworks before IP completion day

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• (1) The Treasury may before IP completion day by regulations specify that—

• (a) the legal and supervisory arrangements of a third country ensure that central counterparties authorised in that country comply with legally binding requirements which are equivalent to the requirements laid down in Title IV of the EMIR Regulation, as it has effect in EU law as amended from time to time;

• (b) central counterparties authorised in that country are subject to effective supervision and enforcement on an ongoing basis; and

• (c) the legal framework of that country provides for an effective equivalent system for the recognition of central counterparties authorised under the legal regimes of other countries.

• (1A) Regulations made under paragraph (1) may contain such conditions for and limitations on the applicability of the regulations as the Treasury considers appropriate.

• (2) On and after IP completion day, regulations under paragraph (1) have effect as if made under Article 25.6 of the EMIR Regulation.

Bank's power to advise Treasury on regulatory equivalence of central counterparties

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• (1) The Bank of England may before IP completion day provide advice to the Treasury in connection with any regulations made or to be made by the Treasury under regulation 14.

• (2) On and after IP completion day, advice provided under this regulation is to be treated as having been provided in accordance with Article 25.6ZA of the EMIR Regulation.

Cooperation arrangements between the Bank of England and the competent authorities of third countries before IP completion day

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• (1) Where the Treasury has made regulations under regulation 14, the Bank of England must take such steps as it considers appropriate to establish co-operation arrangements with the relevant competent authority of the third country in respect of which the regulations have been made.

• (2) Such arrangements are to specify such matters as the Bank of England considers appropriate, and may include—

• (a) the mechanism for the exchange of information between the Bank of England and the competent authority, including access to all information requested by the Bank of England regarding central counterparties authorised in that third country, such as significant changes to risk models and parameters, extension of central counterparty activities and services, changes in the clients account structure and in the use of payment systems that substantially affect the United Kingdom;

• (b) the mechanism for prompt notification to the Bank of England where the competent authority deems a central counterparty it is supervising to be in breach of the conditions of its authorisation or of other law to which it is subject;

• (c) the mechanism for prompt notification to the Bank of England by the competent authority where a central counterparty it is supervising has been granted the right to provide clearing services to clearing members or clients established in the United Kingdom;

• (d) the procedures concerning the coordination of supervisory activities;

• (e) the procedures necessary for the effective monitoring of regulatory and supervisory developments in a third country;

• (f) the procedures for third-country authorities to assure the effective enforcement of decisions adopted by the Bank of England;

• (g) the procedures for third-country authorities to inform the Bank of England promptly of any emergency situations relating to the recognised central counterparty, including developments in financial markets, which may have an adverse effect on market liquidity and the stability of the financial systems of the United Kingdom and the procedures and contingency measures to address such situations.

• (3) On and after IP completion day, co-operation arrangements established in accordance with this regulation are to be taken as having been established in accordance with Article 25.7 of the EMIR Regulation.

Eligibility for temporary deemed recognition

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• (1) This regulation applies to a central counterparty established in a third country (‘A’) if—

• (a) immediately before IP completion day the central counterparty is—

• (i) authorised in accordance with Article 17 of the EMIR Regulation as it then has effect;

• (ii) recognised in accordance with Article 25 of the EMIR Regulation as it then has effect; or

• (iii) a central counterparty to which Article 89.4 of the EMIR Regulation as it then has effect applies;

• (b) the central counterparty has notified the Bank of England in accordance with paragraph (2) that it intends to provide clearing services as a central counterparty in the United Kingdom on and after IP completion day; and

• (c) where the central counterparty has submitted an application under regulation 12, that application has not been determined by the Bank of England.

• (2) For the purposes of paragraph (1)(b), the notification must—

• (a) be made before IP completion day,

• (b) be made in such manner as the Bank of England may direct, and

• (c) contain, or be accompanied by, such information as the Bank of England may direct.

• (3) The Bank of England must confirm promptly receipt of the notification to the person making it.

• (4) During the temporary recognition period determined under regulation 18, A is to be taken to be recognised by the Bank of England pursuant to Article 25 of the EMIR Regulation in respect of the services, activities and classes of financial instrument mentioned in paragraph (5) , and (5A).

• (5) The services, activities and classes of financial instrument in respect of which A is to be taken to be recognised are those which meet the following conditions—

• (a) the first condition is that the service, activity and class of financial instrument is one which immediately before IP completion day A is—

• (i) authorised to provide or perform under Article 17 of the EMIR Regulation as it then has effect;

• (ii) recognised to provide or perform under Article 25 of the EMIR Regulation as it then has effect; or

• (iii) in the case of a central counterparty to which Article 89.4 of the EMIR Regulation as it then has effect applies, authorised or recognised to provide or perform in a member State in accordance with that Article; and

• (b) the second condition is that where A has submitted an application under regulation 12, the service, activity or class of financial instrument is specified in A's application.

• (5A) A is also to be taken to be recognised in respect of other services, activities or classes of financial instrument which meet the following conditions—

• (a) the service, activity or class of financial instrument is one which A is authorised or permitted to provide in the country in which A is established, in accordance with a system of laws or rules applicable to A that is administered by the appropriate regulator in the country concerned;

• (b) the service, activity or class of financial instrument—

• (i) has been notified by A to the Bank of England in accordance with paragraph (5B) as a service, activity or class of financial instrument which A intends to provide to—

• (aa) clearing members, or

• (bb) trading venues within the meaning of Article 2 of the EMIR Regulation,

that are established in the United Kingdom, and

• (ii) where so notified by A, is one which A intends to provide in addition to services, activities or classes of financial instrument mentioned in paragraph (5) in respect of which A is taken to be recognised by the Bank of England.

• (5B) For the purposes of paragraph (5A), the notification must—

• (a) be made in such manner as the Bank of England may direct, and

• (b) contain, or be accompanied by, such information as the Bank of England may direct.

• (5C) The Bank of England must confirm promptly receipt of the notification to the person making it.

• (6) The Bank of England must publish on its website a list of central counterparties that are taken to be recognised by the Bank of England pursuant to Article 25 of the EMIR Regulation by virtue of this regulation.

• (7) Article 25p of the EMIR Regulation does not apply to a central counterparty which is taken to be recognised by the Bank of England pursuant to Article 25 of the EMIR Regulation by virtue of this regulation.

Temporary deemed recognition period

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• (1) The temporary recognition period is the period of seven years beginning with IP completion day.

• (2) If the Treasury is satisfied that it is necessary and proportionate to avoid disruption to the financial stability of the United Kingdom, it may by regulations amend paragraph (1) to extend the temporary recognition period by a period not exceeding 12 months at a time.

Cessation of temporary deemed recognition

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• (1) A central counterparty is, on or after IP completion day, to cease to be taken to be recognised pursuant to Article 25 of the EMIR Regulation in accordance with regulation 17 where any of the following conditions are met.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .