Financial Services & Markets Bill – Overseas Central Counterparties

The HM Treasury has published a new „Policy Paper“ in which it briefly explains certain amendments that it has brought into the Financial Services and Markets Bill (FSM Bill) with respect to non-UK central counterparties (CCPs) operating under the so-called „run-off“ regime. The Bill is currently making its way through Parliament and will primarily issue new powers to the Bank of England (BoE) and repeal ALL EU retained regulations regarding financial services and markets.
To recall, following the UK’s exit from the European Union (EU), the HM Treasury established a Temporary Recognition Regime (TRR) to allow non-UK CCPs to continue offering clearing services to UK firms during the equivalence and recognition assessments. The Treasury also established a „run-off“ regime to enable non-UK CCPs that left the TRR without recognition to wind down their contracts and business with UK counterparties „in an orderly manner“. The Bank of England thereby determined the length of the run-off period for each CCP, with the current maximum period being one year. Some of these CCPs are now up to leaving the „run-off“ regime by end of June 2023.
In January 2023, the HM Treasury introduced an amendment to the Bill that would grant the BoE the power to „extend the maximum run-off period for CCPs from one year to three years and six months“. The purpose of this amendment was to provide CCPs in the „run-off“ regime with additional time to apply for recognition while still offering services to UK firms. As the bill is progressing slowly and still pending Royal Assent thereafter and to ensure the extension of the „run-off“ period functions as intended, the HM Treasury has introduced two further technical amendments to the FSM Bill. The first amendment would enable the Bank’s power to extend the run-off period to come into force upon Royal Assent, while the second amendment would allow the Bank to determine that a „CCP’s run-off period should be treated as not expired, if there is a gap between the CCP’s exit from the run-off regime and Royal Assent.
These amendments aim to ensure the continuity of services to UK firms under the run-off regime, in case Royal Assent is obtained after June 30, 2023. The HM Treasury has been working closely with the Financial Conduct Authority, the Prudential Regulation Authority, and the Bank (the regulators) on these matters, and the regulators have published a joint statement regarding these amendments which are covered in another Event (EventID 21392).