The European Commission has adopted conditional equivalence for central clearing counterparties (CCPS) and central security depositories (CSDs) post-Brexit, as part of its no deal contingency action plan.
The commission has considered it “essential and urgent” to adopt these measures to ensure that the necessary contingency measures can enter into application on 30 March 2019 in order to “limit the most significant damage” caused by a "no-deal" scenario in these areas.
This recognition would allow UK CCPs to continue to provide clearing services to their EU members, and EU banks to meet their obligations to UK CCPs.
The Bank of England stated that the announcement is “a crucial and positive step”.
It said: “It provides the necessary clarity and addresses one of the most important financial stability risks associated with the UK’s withdrawal from the EU. It also enables UK CSDs to be recognised so that they can continue providing notary and settlement services for securities issued under EU law.”
In the UK, HM Treasury and the Bank of England have already put in place a temporary recognition regime for non-UK CCPs and a transitional regime for non-UK CSDs. The Bank of England explained that these will enable EU CCPs and CSDs to continue to provide services in the UK in a no-deal Brexit scenario.
As part of the commission’s contingency measures, it found that only a limited number are necessary to safeguard financial stability in the EU27.
As part of those measures, various acts will apply from the withdrawal date if an exit deal is not ratified.
The acts include a temporary and conditional equivalence for a fixed, limited period of 12 months to ensure that there will be no immediate disruption in the central clearing of derivatives.
Measures also include a temporary and conditional equivalence decision for a fixed, limited period of 24 months to ensure that there will be no disruption in the central depositories services for EU operators currently using UK operators.
Additionally, the commission adopted two delegated regulations facilitating novation, for a fixed period of 12 months, of certain over-the-counter derivatives contracts, where a contract is transferred from a UK to an EU27 counterparty.
According to a statement from the commission, it will continue to “implement its contingency action plan in the weeks to come and will monitor the need for additional action, as well as continue to support member states in their preparedness work”.
