Bank of England announces supervisory action on LME Clear

Following last year’s announcement of the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority of the Bank of England (PRA) to initiate further steps as regards the trade suspension of nickel trading on the London Metal Exchange (LME) that took place between March 8 and March 15, 2022, the PRA has now issued another statement in this context.
Specifically, in view of LME Clear’s key function as a central counterparty for products traded on LME, the regulator reviewed – under the assistance of an appointed skilled person pursuant to section 166 of the Financial Services and Markets Act 2000 (FSMA 2000) – LME Clear’s risk management practices. The review thereby revealed several shortcomings particularly „across LME Clear’s governance, management and risk management capabilities“. As a consequence, LME Clear will need to take further action to „strengthen its governance arrangements, increase independence in management and governance at the CCP, and improve on its wider risk management“.
In order to maintain (or restore) public trust in the financial system and ensure that LME Clear will meet its obligations to mitigate the shortcomings, the Bank of England will again make use of its powers under section 166 of the FSMA 2000 and appoint an independent person to monitor LME Clear’s efforts and progress in mitigating the deficiencies. The person will regularly report to the Bank; these reports will serve the bank to determine its future supervisory strategy as regards the central counterparty.