Flashnews: EMIR Third country CCPs … and the UK
On 21 September 2020, the European Commission published a temporary decision (valid from 1 January 2021 to 30 June 2022) on equivalence between Union and UK regulations on the regulatory framework applicable to CCPs.
While the hypothesis of a no-deal seems to be beyond doubt, such a decision should relieve, at least temporarily, counterparties subject to the clearing obligation under EMIR. The Commission recalls, however, that it based its decision on the current state of regulation in the UK and that it is in a position to revoke equivalence at any time.
On the same day, a delegated act (2020/1303) detailing the criteria that ESMA will use to determine whether the candidate CCP represents a systemic risk to the financial stability of the Union was published in the Union OJ. The nature, size and complexity of the CCP’s activity, the effect of a failure or disruption, the structure of its clearing members, etc. Indeed, since EMIR 2.2, the CCPs of third countries are classified in "Tier 1" (non systemic) and "Tier 2" (systemic); the criteria for recognition being reinforced for the latter. A Tier 2 CCP may even have to locate part of its activity in a Union country if it is considered too systemic.
These two publications allow ESMA to start its process of classification and recognition of a CCP established in the UK if it has requested it (if the European CCPs are “authorised” under the EMIR by their regulators, those of third countries are “recognised” by ESMA and the prerequisite is the existence of equivalence).
And on 28 September 2020, one week to the day after the Commission’s publication, the European regulator announced that it had recognised three CCPs established in the UK as third country CCPs under EMIR:
- LME Clear Limited as Tier 1 CCP
- ICE Clear Limited as Tier 2 CCP
- LCH Limited as Tier 2 CCP
Like the equivalence given by the Commission, these recognitions, which will come into effect on 1 January 2021, are only temporary (they end on 30 June 2022). ESMA will use these 18 months to analyse in detail the systemic importance of these CCPs and in particular the provision of clearing services without being located in the Union.
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