The Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Partial Property Transfers and Safeguarding of Protected Arrangements) Regulations 2023

On December 5, 2023, the new Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Partial Property Transfers and Safeguarding of Protected Arrangements) Regulations 2023 (SI 2023/1316) were published on legislation.gov.uk, the official UK platform for publicizing legal documents. This statutory instrument is related to the implementation of a new special resolution regime for central counterparties (CCPs) outlined in Schedule 11 of the Financial Services and Markets Act 2023 (FSMA 2023) which grants powers to the HM Treasury to use various tools „to mitigate the risk and impact of a CCP failure and the subsequent risks to financial stability and public funds“.
Specifically, these new regulations primarily implement provisions to ensure that when a CCP undergoes resolution and the HM Treasury uses its write-down tools for liabilities of a CCP (e.g. write-down of debt securities) or partial property transfer involving the mandatory transfer of certain assets and liabilities (e.g. require the sale of part of the business of a CCP), crucial arrangements of the CCP are protected against these measures such as set-off and netting arrangements.
Therefore, the regulations set out restrictions when a partial property transfer may be made. These include, for instance, situations where such property transfer would contravene financial market contracts or rules and regulations of security depositories or trading venues. The regulations also include restrictions as to the transfer of assets and liabilities of a CCP where positions in such are netted and subject to distinct default protections. Further restrictions apply to property held on trust by a CCP and to transfers involving assets and liabilities of same group entities. The regulations also stipulate corresponding mitigation measures, if a property transfer has been made in violation of any of the noted restrictions (e.g. voidance of the transfer in case of market contract violations).
The Regulations further describe which liabilities of a CCP may be protected liabilities for purposes of the (non)application of the write-down power of the HM Treasury; in other words, the liabilities that may not be written down such as certain liabilities subject to netting arrangements. It also includes a list of instruments that may be written down, including subordinated or unsecured debt instruments issued by the CCP. Again, in this context, the regulations also stipulate possible mitigation efforts, if instruments have been written down contrary to the described rules.
Finally, the regulations repeal the Banking Act 2009 (Restriction of Partial Property Transfers) (Recognised Central Counterparties) Order 2014.