Flashnews: Recognition of UK – CCPs Associations write to the Commission

25/10/2021

On 16 September, 10 professional associations wrote to the European Commission (EC) asking for an extension of the equivalence between EU and UK regulations.

Click here to read the letter.

As a result of Brexit, the EC published a temporary equivalence decision on the regulatory framework applicable to CCPs1 in September 2020. As a result, ESMA recognized 3 UK CCPs (LME Clear, ICE Clear and LCH), the latter two being considered “systemic” (Tier 2).

If the equivalence and recognition are valid until 30 June 2022, the pivotal date is 30 March, when the CCPs will begin to notify their European members of the termination of their membership. Derivatives contracts will then have to be closed to be reopened in a European CCP or recognized by ESMA. Beyond the impact of such a transfer, consequences in terms of liquidity or fragmentation of the market, is simply the question of supply. At present, it is not possible to replicate in the Union all the activity carried out on UK CCPs.

The letter also raises the issue of the cash equities clearing. Indeed, the existence of equivalence is a necessary condition to allow ESMA to recognize a third country CCP; as a result, its lifting could impact the other proposed markets.

The associations therefore call for an extension of equivalence which would allow a natural movement towards European CCPs. They put forward the EMIR 2.2 regulation which strengthens the powers of the ESMA with regard to the supervision of the CCPs of third countries (UK or not) when they are classified as "Tier 2" and that stopping the recognition would deprive the Union of such monitoring. They also point out that the UK authorities show no intention of relaxing their framework regulating CCPs and thus creating a regulatory divergence between the Union and the UK.

In the absence of a time-limited equivalence, the signatories of the letter request that the extension be sufficiently long and that the EC formalize its decision as soon as possible and in any case before 30 March 2022.

1CCP: Central Counterparty

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