Draft statement of policy: The Bank of England's approach to tiering non-UK central counterparties

1: Introduction

1.1. This Statement of Policy (SoP) is relevant to non-UK central counterparties (CCPs) that are seeking recognition by the Bank of England (the Bank) to provide clearing services in the UK,^{footnote [1]} and relevant home authorities. In line with section [300EF(5)] of the Financial Services and Markets Act 2000 (FSMA), this SoP further specifies the criteria of general application set out in regulation 2 of the Financial Services and Markets Act 2000 (Criteria for Determining Systemic Importance of Overseas Central Counterparties) Regulations 2025 (the Determination SI) under which the Bank makes a determination that a non-UK CCP is systemically important, or is likely to become systemically important, to the financial stability of the UK.

1.2. Where a non-UK CCP has applied for recognition to provide services to UK clearing members or trading venues under [s300EA(1)] of FSMA, the Bank is required under [s300ED(4)] of FSMA to consider whether to make a determination that the applicant CCP is systemically important or likely to become systemically important to UK financial stability. The Bank is also required to consider this in respect of recognised non-UK CCPs (‘overseas CCPs’) in certain circumstances.^{footnote [2]} Where the Bank does make this determination, it will designate that CCP as ‘systemic.’ Where the Bank considers that it will not make this determination, it will designate the CCP as ‘non-systemic.’

1.3. An overseas CCP that is designated as ‘systemic’ will become subject to direct UK supervision and regulation, and will therefore be subject to Bank rules in accordance with rule 3.1 of the Bank of England FMI Rulebook: Overseas Central Counterparties Instrument 2025 (hereon Overseas CCPs Part of the CCP rules). An overseas CCP that is designated as ‘non-systemic' will be primarily supervised and regulated by its home authority. The process by which the Bank considers whether to determine a non-UK CCP as systemically important to UK financial stability (or likely to become so), or whether such a CCP is instead ‘non-systemic’, is referred to as ‘tiering.’

1.4. This SoP sets out the Bank’s approach to tiering non-UK CCPs according to the level of systemic risk they potentially pose to UK financial stability as well as providing a guide to the type of information the Bank will consider in making its tiering designations.

2: Definitions

Default fund contribution

2.1. A default fund contribution (DFC) is a pool of funds established by a CCP, comprising pre-funded financial contributions provided by clearing members, to mutualise any losses arising in the event that one or more participants defaults on their obligations to the CCP and resources provided by the defaulting party (or parties) are not sufficient to cover such losses.

Informed reliance assessment

2.2. An informed reliance assessment is the process whereby the Bank assesses the extent to which the Bank is able to rely on the non-UK CCP’s home authority for supervision and regulation of that CCP.

Initial margin

2.3. Initial margin (IM) is collateral called and collected by a CCP to cover its potential future exposures to clearing members (and, where relevant, to interoperable CCPs) arising in the interval between the last collection of collateral and the liquidation of positions following the default of a clearing member (or, as the case may be, an interoperable CCP). When used in this SoP, the term IM includes margin add-ons and IM posted by clearing members on behalf of clients (regardless of the jurisdiction of those clients).

Interoperability

2.4. An arrangement between two or more CCPs that involves a cross-system execution of transactions. Interoperability allows participants in different CCPs to clear and settle financial transactions across CCPs without participating in multiple systems.

Overseas CCP

2.5. A non-UK CCP that has been recognised by the Bank to provide clearing services to clearing members or trading venues established in the UK.

Non-UK CCP

2.6. A CCP that is established in a country or territory outside of the UK. This may include such CCPs that are not recognised and/or applying for UK recognition, and those that are recognised.

Relevant home authorities

2.7. Any relevant national or international authority which may, in the Bank’s judgement, have a significant impact on:

• the regulatory or supervisory framework applicable to the non-UK CCP; and/or
• the supervisory outcomes in relation to the non-UK CCP.

Tiering

2.8. As noted above, tiering is the process by which the Bank classifies individual non-UK CCPs as either ‘non-systemic’ or ‘systemic.’ Under this process, the Bank considers whether to determine that a non-UK CCP is systemically important to UK financial stability or likely to become so. The Bank considers whether to make this determination in accordance with criteria set out in [regulation 2 of the Determination SI], and in line with this SoP which further specifies the criteria. The classification is therefore based on the degree to which the CCP poses (or is likely to pose) risks to UK financial stability, including (where applicable) the outcome of the Bank’s informed reliance assessment. A non-UK CCP that is designated as systemic will, once recognised, become subject to direct UK supervision and regulation. As such, a systemic overseas CCP will be subject to relevant CCP rules (in accordance with rule 3.1 of the Overseas CCPs Part). The Bank will defer to the supervision and regulation of an overseas CCP’s home authority where that CCP has been designated as non-systemic.

3: The Bank’s approach to tiering non-UK CCPs

3.1. The Bank will undertake a two-stage process to assess whether a non-UK CCP should ultimately be designated as a non-systemic or systemic CCP. The process is consistent with the statutory framework for the Bank to consider whether to determine a non-UK CCP to be systemically important or likely to become systemically important for the financial stability of the UK in accordance with [s300ED(4) and s300EF(1)] of FSMA, and the criteria of general application set out in [regulation 2 of the Determination SI].

3.2. The Bank will review information directly submitted from non-UK CCPs and relevant home authorities as required, in order to aid its decision-making process.

3.3. The diagram below provides a summary of the Bank’s approach to tiering non-UK CCPs.

Figure 1: Summary of the Bank’s approach to tiering non-UK CCPs

Stage 1: Triage

3.4. The Bank will assess the following indicators to initially ‘triage’ non-UK CCPs when they apply for recognition to provide clearing services to clearing members and trading venues established in the UK:

• Initial margin: whether the non-UK CCP has held at least £10 billion of UK clearing member IM (pre-haircut, including IM from non-UK subsidiaries of UK headquartered firms) across all services, at any point in the last five calendar years prior to the submission of the recognition application. This IM figure is inclusive of any margin add-ons and inclusive of IM clearing members post on behalf of clients.
• Default fund contributions: whether the non-UK CCP has held at least £1 billion^{footnote [3]} of UK clearing member DFCs (including DFCs from non-UK subsidiaries of UK headquartered firms) across all services at any point in the last five calendar years prior to the submission of the recognition application.
• Interoperability: whether the non-UK CCP has an interoperability arrangement in place with a UK CCP.

3.5. A non-UK CCP that does not meet any of these criteria will usually not move forward to the next stage of the tiering assessment and will be classified as a non-systemic CCP. A non-UK CCP that meets one or more of these criteria will move forward to the next steps of the process.

3.6. The Bank may apply judgment in applying the triage criteria set out in paragraph 3.4. For example, if the non-UK CCP is close to one or more of the triage indicators (above or below), or the non-UK CCP’s IM and DFC metrics are trending up or down, the Bank may use its judgement to opt whether or not to further assess the non-UK CCP before making a tiering designation.

3.7. For those non-UK CCPs that meet one or both of the first two triage criteria (i.e. IM or DFC), but not the interoperability criterion, the Bank will conduct a test to assess the proportion of total i) IM and ii) DFC attributable to UK clearing members (including non-UK subsidiaries of UK headquartered firms) (the ‘proportionality test’). In other words, this test will broadly assess the proportion of UK clearing member activity to the total of all clearing activity at a particular non-UK CCP. The Bank has set the proportionality thresholds at 20% of the non-UK CCP’s total IM and DFC from all CMs. This will be calculated based on a five-year average of IM and DFC across all services at the non-UK CCP.

3.8. Where both the IM and DFC attributable to UK clearing members (or subsidiaries of UK headquartered clearing members) are below 20%, the Bank will determine if the Bank is able to place reliance on the non-UK CCP’s home authority’s regulation and supervision via a Level 1 informed reliance assessment. The Level 1 informed reliance assessment may be conducted during the tiering process, or, in certain circumstances, may have been conducted in advance at the request of home authorities (as set out in 3.14).

3.9. A non-UK CCP that is below the proportionality test thresholds and where the Bank’s expectations for the Level 1 informed reliance assessment have been met, will be classified as non-systemic.

3.10. Where either or both the IM and DFC attributable to UK clearing members (or subsidiaries of UK headquartered clearing members) is at or above 20%, or where the Level 1 informed reliance assessment expectations have not been met by the relevant home authority, the non-UK CCP will move to Stage 2 of the tiering process.

3.11. A non-UK CCP that meets the interoperability triage criterion will move forward to Stage 2 of the process and will not be subject to the proportionality test and the Level 1 informed reliance assessment.

Contents of the Level 1 informed reliance assessment

3.12. For those non-UK CCPs that are below the proportionality test thresholds, the Bank will consider the following as part of the Level 1 informed reliance assessment:

• The regulatory framework in the home jurisdiction in so far as it applies to the non-UK CCP.
• The nature, extent and degree of supervision of the non-UK CCP as conducted by the home authority.
• The Bank’s relationship with all relevant home authorities, including, where appropriate, cooperation arrangements and transparency around the regulation and supervision of the non-UK CCP.

3.13. The Bank will also take relevant home authorities’ regulatory and supervisory priorities into consideration, including whether authorities responsible for regulating and supervising globally systemic CCPs act in the interests of protecting financial stability. Where the Bank has an existing relationship with the relevant home authorities, the Bank will consider the effectiveness of the cooperation arrangements it already has in place with those authorities and whether any changes would be necessary.

3.14. Where relevant co-operation arrangements already exist between the Bank and the home authority, the home authority may request a Level 1 informed reliance assessment prior to the tiering process. Where the quality of supervision by the home authority is found to meet the Level 1 criteria in relation to the non-UK CCP, the result of the early assessment could be used by the Bank with respect to the relevant non-UK CCPs to satisfy the requirements of Level 1 informed reliance within the tiering process (i.e. as set out in 3.8).

3.15. For home regulatory and supervisory authorities which have little or no previous bilateral relationships with the Bank, an informed reliance assessment will consider whether, in the judgement of the Bank, an effective co-operative relationship is likely to develop with the relevant home authorities. This will be determined on the basis of the key factors outlined in the table in Annex 1 and will take into account the cooperation arrangements in place between the Bank and relevant home authorities.

3.16. To the extent possible, the Bank will rely on information submitted as part of the process of HM Treasury making an Overseas Recognition Regime designation under [s300EB] of FSMA.^{footnote [4]}

3.17. The key areas the Bank will review when assessing the extent to which the Bank is able to rely on the relevant home authorities are outlined in the table in Annex 1. The items in this table are non-exhaustive and the Bank may take other relevant considerations into account for the purposes of the assessment. In order to aid its review, the Bank may also request information and/or clarifications from the relevant home authorities.

Stage 2: Advanced assessment

3.18. For those non-UK CCPs that are above the proportionality test thresholds and/or for which the Level 1 informed reliance expectations have not been met, as well as for non-UK CCPs meeting the interoperability criterion, the Bank will undertake a systemic risk assessment in order to assess factors relating to the non-UK CCP that may impact its systemic importance to the UK and to inform a possible Level 2 informed reliance assessment (paragraph 3.23). This will include a more detailed assessment of the criteria outlined in [regulation 2 of the Determination SI].

3.19. The indicators which the Bank deems most important for this assessment are listed in paragraph 3.21 below. The Bank will place particular emphasis on the key indicators set out below to assess systemic risk to UK financial stability, although these indicators are non-exhaustive. This assessment will also consider the diversity in a CCP's approach to margin models and default waterfalls.

3.20. If this detailed assessment indicates that an non-UK CCP is not potentially systemic to UK financial stability, the non-UK CCP will be designated as non-systemic (and will therefore not progress further in the tiering process).

3.21. The Bank's systemic risk assessment will include a review of all relevant information, including the following areas, to aid its tiering determinations:

• products cleared by the non-UK CCP;
• margin, collateral, and default fund contributions;
• the nature of the non-UK CCP’s access model;
• access to alternative clearing venues; and
• interactions with other financial institutions, including interoperability arrangements.

3.22. Additional detail about the type of information the Bank will review to make its designations is set out in Annex 2.

3.23. Where a non-UK CCP is considered potentially systemic to UK financial stability according to the systemic risk assessment, the Bank will conduct a Level 2 informed reliance assessment to assess the extent to which the Bank is able to place reliance on the non-UK CCP’s home authority’s regulation and supervision. Where the Bank’s expectations for the Level 2 informed reliance assessment have been met, the non-UK CCP will usually be designated as non-systemic. Where the Bank’s expectations have not been met, the non-UK CCP will usually be designated as systemic.

3.24. The judgment of whether a non-UK CCP is systemic will depend on the outcome of the Level 2 informed reliance assessment along with the other factors considered in the tiering process (i.e. where applicable, the initial triage, proportionality test and Level 1 informed reliance assessment and systemic risk assessment). No individual assessment criterion detailed in this SoP will, in isolation, be decisive in a systemic designation. The Bank’s judgments will be made on the basis of a holistic assessment of all applicable criteria.

Contents of the Level 2 informed reliance assessments

3.25. For non-UK CCPs that are considered potentially systemic to the UK, the Bank will consider all of the factors outlined in the Level 1 informed reliance assessment.

3.26. The key areas the Bank will review in the context of the Level 2 informed reliance assessment are outlined in the table in Annex 1. The items in the table are non-exhaustive and the Bank may take other relevant considerations into account for the purposes of the assessment. The Bank will also take into account any key factors identified during the systemic risk assessment to inform its areas of focus for the Level 2 informed reliance assessment. In order to aid its review, the Bank may also request information and/or clarifications from the relevant home authorities.

4: Reviewing tiering decisions

4.1. The Bank will review an existing tiering decision if there is a change which significantly impacts the non-UK CCP’s risk profile.

4.2. Where the Bank has reason to believe that there has been a change at the non-UK CCP or the relevant home authority relative to the criteria outlined in Stage 1 or Stage 2 of the tiering assessment, the Bank will review the latest available information to decide whether the non-UK CCP continues to be appropriately tiered or should be tiered differently. Overseas CCPs are obliged to notify the Bank of any material changes affecting the conditions for recognition.^{footnote [5]}

4.3. As set out in [s300EH] of FSMA, if on review the Bank determines that a non-systemic CCP should be reclassified as systemic, the Bank will allow an appropriate adaptation period when setting the date from which the CCP will be treated as a systemic overseas CCP (and therefore must comply with the requirements applicable to systemic CCPs, including relevant CCP rules).

Annex 1: Informed reliance assessment

Annex 2: Systemic risk assessment