09.28.2020

ESMA Recognition Of UK CCPs Welcomed

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today announced that the three central counterparties (CCPs) established in the United Kingdom (UK) – ICE Clear Europe Limited, LCH Limited, and LME Clear Limited – will be recognised as third country CCPs (TC-CCPs) eligible to provide their services in the EU, after the end of the transition period following the withdrawal of the UK from the EU on 31 December 2020.

On 21 September 2020, the Delegated Acts on tiering, comparable compliance and fees under Regulation (EU) 648/2012 (EMIR), were published in the Official Journal. The Delegated Acts set out the new regulatory and supervisory regime for third-country CCPs (TC-CCPs), including the details for conducting the tiering assessment of TC-CCPs to determine the systemic importance for the EU of a TC-CCP which has applied for recognition under EMIR. ESMA needs to conduct this determination before a TC-CCP can be recognised in accordance with the applicable requirements.

The European Commission (EC) also adopted on 21 September, in the context of the end of the transition period under the Withdrawal Agreement between the EU and the UK[1], an equivalence decision determining for a limited period of time, that the regulatory and supervisory framework applicable to CCPs established in the UK is equivalent.

The adoption of the equivalence decision is the first of several conditions to be met for recognising a TC-CCP under EMIR, including the establishment of cooperation arrangements with the home supervisor. In this respect, ESMA has agreed with the Bank of England a new Memorandum of Understanding (MoU) establishing the necessary cooperation arrangements for the recognition and supervision of UK CCPs under EMIR, and taking into account the specific aspects regarding cooperation arrangements outlined in the equivalence decision adopted by the EC.

The three UK CCPs have submitted to ESMA their applications to be recognised as TC-CCPs under EMIR and, based on these, ESMA has conducted the tiering and recognition assessments, including consulting the relevant authorities in accordance with EMIR.

ESMA has adopted the following tiering decisions:

  • LME Clear Limited has been assessed as a Tier 1 CCP;
  • ICE Clear Limited as a Tier 2 CCP; and
  • LCH Limited as a Tier 2 CCP.

Furthermore, after considering the conditions for recognition under Article 25 of EMIR, ESMA adopted decisions to recognise the three UK CCPs as TC-CCPs under EMIR. In line with the equivalence decision, the recognition decisions will only take effect on the day following the end of the transition period and continue to apply while the equivalence decision remains in force, which is for 18 months until 30 June 2022.

As outlined in the equivalence decision, the 18 months provided for by the time-limited decision gives ESMA the opportunity to conduct a comprehensive review of the systemic importance of UK CCPs and their clearing services or activities to the Union and take any appropriate measures to address financial stability risks, including a fully reasoned assessment according to Article 25(2c) to examine whether a TC-CCP or some of its clearing services are of such substantial systemic importance that this CCP should not be recognised to provide certain clearing services or activities. ESMA undertakes to conduct such a comprehensive review in due time.

Source: ESMA

Bank of England statement 

The Bank of England welcomes the European Securities and Markets Authority’s (ESMA) recognition decisions with respect to central counterparties (CCPs) established in third countries. The decisions give the formal permission for UK CCPs to operate in the EU, continue to provide clearing services to their EU members, and EU banks to continue meet their obligations to UK CCPs.

This follows the publication on 21 September 2020 by the European Commission of a time-limited equivalence decision on the future UK legal, and supervisory framework for UK CCPs.

As part of the recognition process, the Bank of England and ESMA have agreed an updated Memoranda of Understanding regarding cooperation and information-sharing arrangements with respect to CCPs. The MoU takes effect from 1 January 2021.

Source: Bank of England

FIA statement

FIA President and CEO Walt Lukken today made the following statement in reaction to the EC and ESMA decisions to formally grant temporary equivalence and recognition for clearinghouses based in the UK, which allow them to continue to provide clearing services in the EU at the end of the transition period between the EU and the UK.

“Today’s decision by ESMA on the recognition of UK CCPs, combined with the European Commission’s adoption of time-limited equivalence, ensures financial stability, operational continuity and market access for customers. During these uncertain times, it is imperative that businesses have access to clearinghouses and the risk mitigating services they provide. FIA thanks the leadership shown by EC Executive Vice-President Valdis Dombrovskis and ESMA Chairman Steven Maijoor in making these important determinations.”

Source: FIA

Intercontinental Exchange, Inc. (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, announces that ICE Clear Europe, ICE’s London-based clearing house, has been recognized by the European Securities and Markets Authority (ESMA), the European Union (EU) securities markets regulator, as a third country central counterparty in accordance with the European Markets Infrastructure Regulation (EMIR). This recognition will take effect once the transition arrangement between the United Kingdom and EU ends.

“This recognition helps ensure that EU market participants can continue to access global markets cleared at ICE Clear Europe once the transition arrangement ends,” said Hester Serafini, President of ICE Clear Europe. “We appreciate ESMA’s efforts and for providing this recognition”.

With approximately four million contracts cleared every day across multiple asset classes, ICE Clear Europe acts as a central counterparty that becomes the buyer to every seller and the seller to every buyer for its clearing members. Through this central counterparty function, ICE Clear Europe provides financial security for each transaction for the duration of the position by limiting counterparty credit risk. ICE Clear Europe clears futures and options contracts for interest rates, equity index futures, energy products, agricultural products and credit default swaps.

Source: ICE

Related articles

  1. Temporary equivalence is set to expire on June 30 2022.

  2. Margins Raised Ahead of Brexit Vote

    IRS trading volumes have fragmented without an equivalence agreement.

  3. Brexit Muddles Future of UK-EU Linkage

    Most EU member states had an increase in bankers earning more than €1m.

  4. A structured home-office work mix can optimize a trading desk's efficiency, Fidelity's Tom Stevenson writes.

  5. Staff will be working from a mix of home and the office.