Context and objectives

On 21 September 2020, the Commission Implementing Decision (EU) 2020/1308 was published in the Official Journal of the European Union. This decision determines, for a limited period, that the regulatory framework applicable to central counterparties (CCPs) in the United Kingdom of Great Britain (UK) and Northern Ireland is equivalent to the requirements set out in Regulation (EU) No 648/2012 (EMIR).

The European Commission adopted this time-limited decision to give an additional 18 months to:

• European Union (EU) clearing members, to reduce their exposure to the UK market’s infrastructure;
  
• EU CCPs, to further develop their capacity to clear relevant trades; and
• The European Securities and Markets Authority (ESMA), to review the systemic importance of UK CCPs.

Background and context

From 1 January 2021, UK CCPs will be considered as “third-country CCPs” under EMIR, meaning they cannot provide clearing services in the EU unless they are recognized by ESMA.

As a consequence, if UK CCPs are not recognized under EU laws, they may not clear over-the-counter (OTC) derivatives that are subject to the EMIR’s clearing obligation. Concretely, these UK CCPs may be temporarily prevented from fulfilling their clearing obligations, what in turn, may pose risks to the financial stability and the implementation of the monetary policy of the EU and its Member States as their members and clients might not be able to perform trades and clear derivative positions. Therefore, these UK based CCPs are allowed to continue to provide clearing services in the EU for a limited period and under specific conditions until the situation becomes clearer.

For these reasons, the European Commission has determined that, until 30 June 2022, the UK’s legal and supervisory arrangements that govern UK CCPs shall be considered as equivalent, since these arrangements meet all the conditions of Article 25(6) of EMIR.

What is in it for my institution?

This temporary recognition implies that the status quo in derivatives clearing is preserved for all financial and non-financial institutions when they trade and clear in UK derivatives until the end of June 2022. What will happen beyond that date remains unclear at this stage, hence for non-clearing member firms will there be an extension, will there be a formal equivalence or nothing is to be clarified. 

Next steps

The Commission Implementing Decision will apply from the end of the Brexit transition period (1 January 2021) and expire on 30 June 2022.

How can Deloitte help you?

Deloitte has developed a systematic approach: first, a Brexit health check to assess the potential impacts Brexit may have on your structure and organization. Then, based on both business development plans and legal realities, Deloitte can help you implement operational changes for a robust post-Brexit environment strategy.

Deloitte’s advisory specialists and dedicated services will help you design and implement your business strategy in light of the future evolution of the regulatory framework and market trends.

Additionally, with its transaction regulatory reporting service, Deloitte offers a range of solutions for the forthcoming investment fund reporting requirements that are tailored to your business needs.

With our Regulatory Watch Kaleidoscope service, Deloitte helps you stay ahead of the regulatory curve to better manage and plan upcoming regulations.

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