Clearing in the 2020s: the Bank of England’s approach to policy reform and international cooperation – speech by Sasha Mills

Sasha Mills, the Executive Director of the Financial Market Infrastructure, gave a speech on the FSMA 2023 and how it will shape UK’s clearing industry.
BoE has a long history of shaping financial regulations, including EU legislations, and supervising CCPs and CSDs. She underlines the following points:
– BoE’s strong supervision of stress tests of CCPs, which resulted in high resilience to scenarios
– the FSMA 2023’s change to allow BoE to resolve any UK CCPs quickly and effectively
– the new resolution (FSMA 2023) is relevant to UK CCPs only
– implementation of No Creditor Worse Off (NCWO) safeguard, meaning that CCP creditors would be eligible for compensation.
Rules and their implementation will also change with FSMA 2023 – BoE will receive rulemaking power over CCPs and CSDs to ensure timely and transparent responses to financial risks. It also plans to introduce „fundamental rules“ where BoE would describe its expectations on firms‘ operations; this should ease the supervision process both for BoE and for the firm.
Mills stresses that the regulations and approach are not set in stone but rather will be adapted to the market needs. As an example, she mentioned that „FMI regulation and supervision will be governed by a Financial Markets Infrastructure Committee, a statutory committee which will take over from our current, non-statutory, FMI Board“, that BoE will consider new rules proportionally and bear sustainability in mind.
One of the most important aspects is the Bank’s „responsibility to the wider, global financial system“, as the UK market is very significant globally. „The legislation requires that in any exercise of the rulemaking power, the Bank must consider the effects of those rules on the financial stability of any country where a CCP or CSD provides services. This must of course be done in a non-discriminatory manner, that is, in a way that does not favor one jurisdiction over another.“
The speaker underlines the importance of Cost Benefit Analysis (CBA) of the new proposed rules, stressing that this might be unevenly distributed. BoE is also ought to focus on innovation and efficiency within FMI services as part of its secondary objective.
Mills mentions that the priority now is to replace EMIR „with a more adaptable and dynamic rulebook“, with the help of market participants in the form of consultation papers. Additionally, it is important to remember that outcomes of the financial industry in one country, especially one that is a big market player, have a global impact.
Moreover, the Director emphasized the importance of cooperation, especially with FCA (who supervise exchanges) in case of the Bank (who supervise CCPs). This model, of sharing responsibilities between two entities, works for the UK but might not necessarily work for other countries. Internationally, BoE cooperates with ECB, ESMA and US CFTC, as well as regulators in particular countries.
Sasha Mills ends the speech by reminding participants that the implementation of new rules in the UK will continue to be robust and will be up to international standards.