ESMA prepares CCP, CSD application ahead of no-deal

Jonathan Boyd
ESMA prepares CCP, CSD application ahead of no-deal

The European Securities and Markets Authority has issued clarification on its plans to recognise central counterparies (CCPs) in the UK as third country CCPs in the event a no-deal Brexit comes about on 30 March.

Continued access to UK CCPs is required acording to Esma because of the need to limit the risk of disruption in central clearing and avoid causing financial instability in the EU. 

"Esma aims to recognise UK CCPs in a timely manner, where the four recognition conditions under Article 25 of Emir are met," the Authority said:

1. The first condition is the adoption of an equivalence decision. Esma welcomes the Commission Implementing Decision (EU) adopted on 19 December 2018 "determining for a limited period of time, that the regulatory framework applicable to central counterparties in the United Kingdom of Great Britain and Northern Ireland is equivalent, in accordance with Regulation 648/2012 of the European Parliament and the Council" (equivalence decision).

The equivalence decision on the UK enters into force on the day after its publication in the Official Journal of the EU. It will apply for a period of 12 months starting from the date following that on which the Treaties cease to apply to, and in, the UK (Brexit date) and only in case no agreement to extend the two year period referred to in Article 50(3) of the Treaty on European Union is reached and no withdrawal agreement is concluded in accordance with Article 50(2) of that Treaty (no-deal Brexit).

2. The second condition is that the CCPs are authorised in the UK and are subject to effective supervision and enforcement ensuring full compliance with the prudential requirements applicable therein. The Bank of England (BoE) is expected to provide ESMA with a letter confirming that the UK CCPs are authorised in the UK and comply with the prudential requirements applicable in the UK.

3.  The third condition is the establishment of cooperation arrangements between Esma and the BoE. Esma has already engaged with the BoE to create a Memorandum of Understanding (MoU) establishing the necessary cooperation arrangements for the recognition of UK CCPs, in accordance with Article 25(7) of Emir. The MoU is in the process of being refined in order to ensure, in particular, an effective exchange of information and coordination of supervisory activities between Esma and the BoE, in line with Recitals 12 and 13 of the equivalence decision, which is "an essential condition for maintaining the determination of equivalence" (Recital 11).

The BoE has already confirmed that it will provide information to Esma in line with its current obligations and those set out in the equivalence decision. Based on these assurances Esma expects that the MoU will be agreed by the end of January. The MoU, like the equivalence decision, will take effect from the date following Brexit date, under a no-deal Brexit scenario.

4.  The fourth and last condition is that the UK is not on the list of third-country jurisdictions which have strategic deficiencies in their anti-money laundering and countering the financing of terrorism regimes (high-risk third countries) under the Commission Delegated Regulation (EU) No 2016/1675 (as subsequently amended) under Directive 2015/849 (which repealed Directive 2005/60/EC). ESMA has no expectation that the UK will be added to this list upon Brexit date.

Esma has added that because of the envisaged changes, it is "now ready to review applications for recognision under Emir from UK CCPs."

"To ensure continued access to UK CCPs for EU clearing members and trading venues, Esma aims to adopt the recognition decisions well ahead Brexit date. Similarly to the equivalence decision, they will take effect on the date following Brexit date, under a no-deal Brexit scenario."

Esma has also announced that it "supports continued access to the UK Central Securities Depositary (CSD), in order to allow the UK CSD to serve Irish securities and to avoid any negative impact on the Irish securities market."


This article was first published on InvestmentEurope


Jonathan Boyd
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Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.