In light of the UK’s withdrawal from the EU, the UK amended its legislation to enable third-country CCPs, CSDs and payment systems, which are not subject to UK law, to receive settlement finality designation within the UK. Any system previously covered by the EU’s Settlement Finality Directive, that submitted an application for permanent designation by 30 June 2021, continues to benefit from the UK’s settlement finality protection under the Temporary Designation Regime, which ends on 31 December 2023. Further details can be found on the Bank’s website.footnote 
Once a system, not subject to UK law, has been designated under the UK Settlement Finality Regulations (SFR), the Bank will monitor that the system continues to meet the requirements for designation. The requirements are:
- A system must:
- have at least three institutions participating in the system, unless otherwise determined by the Bank in any case where there are two institutions participating in the system and the Bank considers that designation is required on the grounds of systemic risk; and
- be a system through which transfer orders are effected.
- A system must have adequate arrangements for the effective monitoring and enforcement of compliance with its rules.
- A system operator must have financial resources sufficient for the proper performance of its functions.
- A system operator must be able and willing to co-operate with the relevant UK supervisory and administrative authorities.
- The rules of the non-UK law system must:
- specify the point at which a transfer order takes effect as having been entered into the system;
- specify the point after which a transfer order may not be revoked by a participant or any other party; and
- prohibit the revocation by a participant or any other party of a transfer order from the point specified in accordance with paragraph (b).
- The system must have default arrangements, which are appropriate for that system in all the circumstances.
Pursuant to Regulation 12 of the SFR, this note sets out the Bank’s approach to the ongoing monitoring of third-country designated systems. In line with the Bank’s approach to co-operation with overseas authorities,footnote  we will have regard to Home State regulation where we are satisfied that there are equivalent requirements e.g. by implementation of the Settlement Finality Directive or relevant Principles within the CPMI-IOSCO Principles for Financial Market Infrastructure. If the Bank identifies any areas of concern, we will, in the first instance, engage with the relevant home state regulator (where one exists) to resolve any issues.
In the event that there were material changes planned in these equivalent requirements, we would review our approach to consider if it remained appropriate, and if we proposed to change our approach, we would give reasonable notice to allow for necessary preparations.
These requirements will be applied to each designated system when its application for permanent designation is approved.
The SFR requires an operator of a designated system, not subject to UK law, to notify the Bank when it has made certain changes as set out below:
- Changes to default arrangements – within seven days.
- Any rule changes relating to matters dealt with in the SFR – within fourteen days.
- Changes to UK membership of the designated system – within seven days.
Where a system notifies the Bank of changes to its default arrangements or its rules, the Bank will also require the system operator to attest that, in light of this change, the system continues to meet the requirements for designation. An appropriate member of the senior management of the system operator should provide this attestation. Typically, we would expect this to be a direct report of the CEO. An attestation is not required in relation to changes to membership.
Where a system retains a public record of members (e.g on its website), a system can meet the requirement to notify the Bank of changes to membership by informing us that the website has been updated, as long as this is done within seven days of the change to the membership.
Where the home state regulator has equivalent requirements, we will not seek any further information. However, if there are no equivalent local requirements, the Bank may review the change and seek additional information if necessary.
Under Article 10(2) of the SFR, the Bank can ask a designated system to provide such information as is reasonably required to satisfy itself that the requirements for designation continue to be met and to verify in such manner as it may specify.
The Bank intends to use this power to require a designated system, not subject to UK law, to provide an annual attestation stating:
- that it has met the intra-year notification obligations;
- that it continues to meet the UK requirements for designation;
- whether it is designated under settlement finality requirements in its home state; and
- whether it is subject to other relevant regulation as an FMI.
An appropriate member of the senior management of the system operator should provide this attestation; typically, we would expect this to be a direct report of the CEO.
If the Bank has concluded that the relevant Home State regulator has equivalent requirements, we will not seek any further information. However, if there are no equivalent local requirements, the Bank may seek additional information. The Bank may also from time to time, request a current copy of a designated system’s rules, if there have been significant or multiple changes, to ensure that the Bank retains an up-to-date version.
Article 10(2) of the SFR also allows the Bank to make ad hoc requests for information. The Bank does not currently envisage that it would exercise the power in this way. However, the Bank reserves the right to do so, in exceptional circumstances, if required.
The Bank set out its approach to deference in a speech by Jon Cunliffe (Deputy Governor, Financial Stability): Governance of financial globalisation - speech by Jon Cunliffe.