Information on the effect of the UK’s withdrawal from the EU on FMI supervision

Information on the effect of the UK’s withdrawal from the EU on FMI supervision, and information for non-UK FMIs on applying to become recognised in the UK and receive UK settlement finality protection

This page sets out the legal and regulatory framework that would apply at the end of the transition period in the absence of further changes to reflect any new agreement on the future relationship between the EU and the UK.

Following the UK’s exit from the EU at 11pm on 31 January 2020, the UK entered a transition period agreed as part of the Withdrawal Agreement between the UK and EU. The transition period is due to end at 11pm on 31 December 2020. During the transition period, EU law will continue to apply to the UK under the terms set out in the Withdrawal Agreement Act.

At the end of the transition period, the Bank of England will assume new responsibilities related to financial market infrastructure (FMI) supervision from the EU authorities. These include the recognition of non-UK FMI, the setting of technical standards in relation to CCPs and CSDs and determining which financial products fall within the scope of the clearing obligation.

Onshoring of EU law including binding technical standards

The UK’s withdrawal from the EU requires changes to be made to UK legislation, including to ensure there is a functioning legal framework for UK financial regulation when the UK leaves the EU. 

The Bank is responsible for implementing some of these legal changes, including in relation to FMI rules and FMI-related binding technical standards. A consultation on these changes was published in October. The Bank published its response to the consultation on 28 February 2019. The Bank’s policy statement includes near-final changes to FMI rules and onshored Binding Technical Standards to fix deficiencies arising from the UK’s withdrawal from the EU. The final changes to FMI rules and onshored Binding Technical Standards have now been published. Following the extension to the Article 50 period, a further consultation was published in July 2019.

The Bank and PRA may need to make additional EU Exit Instruments to reflect legislative changes during the further extension of the Article 50 period from 31 October 2019 to 31 January 2020 and during the transition period between 1 February 2020 and 31 December 2020. Therefore, we have not made final versions of the draft instruments published in CP18/19 'UK Withdrawal from the EU: Changes Following Extension of Article 50' at this time.

We have also not made final versions of the Bank and PRA transitional directions published alongside CP18/19, nor have we published updated transitional guidance materials. The latest transitional guidance materials were published as ‘near-final’ in Section A of the 28 February 2019 version of PS5/19. The Bank and PRA will communicate on the status of the transitional directions before the end of the transition period. 

The Bank and/or PRA may issue further statements or updates in relation to this topic, including in relation to any EU materials that begin to apply during the transition period.

The relevant Bank of England materials relating to changes to the Bank’s role as FMI competent authority are:

There are also three main statutory instruments that make changes to onshore EMIR. They are:

There is one main statutory instrument making the necessary changes to onshore the CSDR. This is:

There are two statutory instruments which make the necessary changes to the UK settlement finality regime. They are:

The Bank of England’s approach to setting the Clearing Obligation

During the transition period, the existing EU clearing obligation that applies to several classes of OTC derivatives, as set out under EMIR, continues to apply in the UK. At the end of the transition period, it will become the Bank of England’s responsibility to specify the classes of OTC derivatives that are subject to the clearing obligation in the UK.  

The Bank will keep the scope of the UK clearing obligation under review.

Information for non-UK FMIs

Recognition of non-UK CCPs

In November 2018, the UK passed legislation to transfer the third country equivalence and recognition functions under EMIR to the relevant UK authorities. The Bank will be responsible for recognising non-UK CCPs to provide services in the UK at the end of the transition period.

The UK regime will also reflect the changes made by EU Regulation 2019/2099 which came into force on 1 January 2020. This follows the general approach HM Treasury and the Bank has taken to ‘onshoring’ EU financial services legislation.

Non-UK CCPs may continue to submit formal recognition applications or notifications to enter the Temporary Recognition Regime ahead of the end of the transition period. We will ensure non-UK CCPs are kept informed of relevant developments and they should also refer to the following information sources:

Please feel free to contact us at FMI-Enquiries@bankofengland.co.uk

Temporary Recognition Regime for non-UK CCPs

The Temporary Recognition Regime (TRR) will come into effect at the end of the transition period and last for three years, extendable by HMT. The TRR allows eligible non-UK CCPs to continue to provide clearing services in the UK before recognition is granted.

To enter the TRR, eligible non-UK CCPs need to inform the Bank before the end of the transition period of their intention to provide clearing services in the UK. They can do this either by submitting an application for recognition or providing a notification to the Bank. 

The Bank has published an interim list of CCPs that intend to offer clearing services and activities under the TRR. This interim list will be updated periodically over the coming months. The final list will be published on the Bank’s website at the end of the transition period.

There is more information in the letters sent to non-UK CCPs in October 2018 and in the practical guidance for recognition of non-UK CCPs. Please feel free to contact us at FMI-Enquiries@bankofengland.co.uk

Non-UK CCP run-off regime

The statutory instrument ‘The Financial Services Contracts (Transitional and Saving Provision) (EU Exit) 2019’ establishes a ‘CCP run-off regime’ which provides certain non-UK CCPs time-limited recognition to continue to offer clearing services. This allows UK firms time to close out relevant contracts and business with a non-UK CCP in an orderly manner, in the event that an eligible non-UK CCP does not enter the TRR. The legislation also empowers the Bank to determine a run-off period for non-UK CCPs that enter the TRR but exit without being granted recognition. The CCP run-off regime will come into effect at the end of the transition period.

For non-UK CCPs that are eligible for but do not enter the TRR, the CCP run-off regime provides recognition to provide clearing services in the UK for a period of one year (non-extendable) at the end of the transition period. For eligible non-UK CCPs that enter the TRR but exit without being granted recognition, the CCP run-off regime provides recognition for a period of up to one year (non-extendable) from the day the CCP exits the TRR. 

Firms in the CCP run-off regime will only be permitted to carry on the range of services they were permitted to carry on immediately before entering the regime. 

Non-UK CCP recognition fees

The Bank published a consultation on 25 October 2018 on a proposed fee regime for non-UK CCPs seeking UK recognition.

Following the consultation and having considered the feedback received, the Bank has decided to introduce a recognition fee of £35,000 for non-UK CCPs. For more information, please see the Statement of Policy published by the Bank on 15 April 2019.

Recognition of non-UK CSDs

On 6 December 2018, the UK parliament approved legislation which sets out how a non-UK CSD can continue to provide services in the UK following the UK’s withdrawal from the EU. In parallel, the Bank published a letter to non-UK CSDs, outlining the circumstances in which non-UK CSDs would need to be recognised and the process that the Bank expects to follow.

On 25 June further draft legislation was published by HMT, please also see The Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020. Under this legislation, if HMT makes any equivalence decisions in relation to the EEA during the transition period, EEA CSDs will be able to apply to the Bank for recognition before the end of the transition period and, in any event, must submit a formal recognition application within 6 months of the end of the transition period. Where an equivalence decision is made by HMT, we will contact EEA CSDs, as appropriate, and notify them of the actions that they need to take, including the manner in which such a recognition application may be made and the information that must accompany it. The Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020 supplements existing legislation that provides for equivalence and recognition decisions after the end of the transition period. The procedure for non-EEA CSDs remains unchanged and no equivalence decisions will be made by HMT until after the end of the transition period.

The Bank has published an interim list of CSDs that intend to provide CSD services in the UK using transitional provisions. These provisions come into effect at the end of the transition period. This is an interim list as of the date of publication listed in the document. It is subject to change and will be updated periodically over the coming months. The final list will be published on the Bank’s website at the end of the transition period.

Any enquiries should be directed to CSD-enquiries@bankofengland.co.uk, along with a contact name and details for further discussion. 

Non-UK CSD recognition fees

The Bank published a consultation on 15 April 2019 on a proposed fee regime for non-UK CSDs seeking UK recognition.

Following the consultation and having considered the feedback received, the Bank has decided to introduce a recognition fee of £30,000 for non-UK CSDs. For more information, please see the Statement of Policy published by the Bank on 31 July 2019.

Applying to receive UK settlement finality protection

On 18 February 2019, the UK parliament approved a statutory instrument that makes amendments to the UK Settlement Finality Regulations (SFRs). These set out how overseas CCPs, CSDs and payment systems can receive settlement finality designation within the UK. The UK parliament has also approved a second statutory instrument making further minor amendments to the UK SFRs. The effect of these is to dis-apply, for systems not governed by UK law, two of the designation requirements, relating to information sharing to third parties and notification requirements by participants in the event of their insolvency.

On 6 November 2018, the Bank published a letter asking EEA systems to provide an indication of their intention to enter the temporary Settlement Finality designation regime, to continue to receive UK settlement finality protection in advance of permanent designation being granted. This letter follows a previous letter sent on 24 July 2018. On the 31 July 2019, the Bank announced that it does not intend, at this time, to charge fees to non-UK law FMIs for UK settlement finality designation. 

The Bank has published an interim list of EEA systems whose operators have notified the Bank for such systems to receive such settlement finality protection, which comes into effect at the end of the transition period. This is an interim list as of the date of publication listed in the document. It is subject to change and will be updated periodically over the coming months. The final list will be published on the Bank’s website at the end of the transition period. Operators of EEA systems who have not done so can continue to notify their intent to enter the temporary settlement finality designation before the end of the transition period.

Any queries from systems or their users regarding this process should be sent to SFD-Enquiries@bankofengland.co.uk.

Central banks receiving settlement finality protection for securities held as collateral security

The statutory instrument referred in the UK settlement finality protection section above also sets out how the Bank may notify HM Treasury of the non-UK central banks that will receive protection against UK insolvency law challenges in relation to their central bank functions. 

At the present time, the central banks of EEA states and the European Central Bank receive this protection. To ensure the continuity of this protection following the UK’s withdrawal from the EU, the Bank has accordingly notified HMT of those central banks. This protection will take effect at the end of the transition period.

This list may be updated from time to time.

This page was last updated 26 June 2020
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