The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020

Publication Date:January 01, 2020
 
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2020No. 646

EXITING THE EUROPEAN UNION

FINANCIAL SERVICES AND MARKETS

The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020

Made24thJune2020

Coming into force in accordance with regulation 1(2) and (3)

The Treasury make the following Regulations in exercise of the powers conferred by section 8(1) of, and paragraph 21 of Schedule 7 to, the European Union (Withdrawal) Act 2018( 1).

A draft of these Regulations has been approved by a resolution of each House of Parliament in accordance with paragraph 1(1) of Schedule 7 to the European Union (Withdrawal) Act 2018.

PART 1

Introduction

Citation and commencement

1.—(1) These Regulations may be cited as the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020.

(2) The following provisions of these Regulations come into force on the day after the day on which they are made—

(a) this Part;

(b) in Part 2, paragraph (2) of regulation 2 (and paragraph (1) in so far as it relates to that paragraph); and

(c) Part 3.

(3) The remaining provisions of these Regulations come into force on IP completion day.

PART 2

Amendment of primary legislation

Amendment of the Financial Services and Markets Act 2000

2.—(1) The Financial Services and Markets Act 2000( 2) is amended as follows.

(2) In section 138P(6) (technical standards)( 3), after paragraph (c) insert—

“(d) “the EMIR regulation” has the meaning given in section 313.”.

(3) In section 296 (appropriate regulator's power to give directions)( 4)—

(a) before subsection (2) insert—

“(1C) This section also applies if it appears to the Bank of England that a Tier 2 third country central counterparty has failed to comply with an obligation imposed on it by or under this Act, or by or under the EMIR regulation.”;

(b) after subsection (2) insert—

“(2ZA) Where this section applies by virtue of subsection (1C), the Bank of England may direct the Tier 2 third country central counterparty to take specified steps for the purpose of securing compliance with the obligations referred to in that subsection.”;

(c) before subsection (3) insert—

“(2C) In the case of a Tier 2 third country central counterparty, those steps may include—

(a) the granting to the Bank of England of access to any premises of the Tier 2 third country central counterparty for the purposes of inspecting—

(i) those premises; or

(ii) any documents on the premises which appear to the Bank of England to be relevant for the purposes mentioned in subsection (2ZA);

(b) the suspension for the period specified in the direction of the carrying on in the United Kingdom by the Tier 2 third country central counterparty of any activity in respect of which the third country central counterparty is exempt from the general prohibition.

(2D) The Bank of England may not inspect the premises or documents on the premises of a Tier 2 third country central counterparty without first informing the relevant third country competent authority, and inspections must be conducted in accordance with cooperation arrangements established under Article 25.7 of the EMIR regulation.

(2E) In subsection (2D), relevant third country competent authority means a regulatory authority of a country other than the United Kingdom which is responsible for the authorisation and supervision of central counterparties in its territory.”;

(d) in subsection (3), after “section” insert “(except a direction made under subsection (2ZA))”.

(4) In section 313(1) (interpretation of Part 18)—

(a) in the definition of “recognised body”( 5) at the end insert “, and in Chapter 3B also includes a third country central counterparty”;

(b) in the appropriate place insert—

“Tier 2 third country central counterparty” means a third country central counterparty which has been determined by the Bank of England to be systemically important or likely to become systemically important in accordance with Article 25.2a of the EMIR regulation;”.

(5) In Schedule 17A (further provision in relation to Part 18)( 6)—

(a) in paragraph 11(1) (power to require information)( 7)—

(i) after sub-paragraph (ab) insert—

“(ac) a third country central counterparty and any person to whom that central counterparty has outsourced operational functions, services or activities.”

(ii) in sub-paragraph (b), after “a recognised clearing house” insert “, a third country central counterparty”;

(b) in paragraph 13(1) (appointment of persons to carry out general investigations)( 8), after “overseas clearing house” insert “or to any Tier 2 third country central counterparty”.

(c) in paragraph 14(2) (appointment of persons to carry out investigations in particular cases)( 9) at the end insert—

“(g) a third country central counterparty may be guilty of an offence under section 398(1);

(h) a Tier 2 third country central counterparty may have contravened the requirements of the EMIR regulation.”

(d) in paragraph 30(a) (offences), after “recognised clearing house” insert “, a third country central counterparty”.

PART 3

Amendment of subordinate legislation

Amendment of the Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018

3. In regulation 2 (interpretation) of the Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018( 10), at the end of paragraph (e), for “as amended by Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019”, substitute “as last amended by Regulation (EU) 2019/2099 of the European Parliament and of the Council of 23 October 2019”.

Amendment of the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018

4.—(1) The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018( 11) are amended as follows.

(2) In regulation 1(4) (interpretation), in the definition of “the EMIR Regulation” for “as amended by Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019” substitute “as last amended by Regulation (EU) 2019/2099 of the European Parliament and of the Council of 23 October 2019”.

(3) Omit regulation 8 (recognition of a third country CCP).

(4) In regulation 11 (interpretation) in the appropriate places insert the following definitions—

““clearing member” means an undertaking which participates in a central counterparty and which is responsible for discharging the financial obligations arising from that participation;

“client” means an undertaking with a contractual relationship with a clearing member of a central counterparty which enables that undertaking to clear its transactions with that central counterparty;”.

(5) In regulation 13 (deemed recognition pursuant to Article 25 of the EMIR Regulation), after paragraph (5) insert—

“(5A) The fifth condition is that the applicant has not been determined as systemically important or likely to become systemically important in accordance with regulation 13A and is therefore a Tier 1 CCP.”.

(6) After regulation 13, insert—

“Determination of systemic importance

13A.—(1) The Bank of England must determine whether the applicant is systemically important or likely to become systemically important for the financial stability of the United Kingdom (a “Tier 2 CCP”) by taking into account all of the following criteria—

(a) the nature, size and complexity of the applicant's business in the United Kingdom, and outside the United Kingdom to the extent that its business may have a systemic impact on the United Kingdom, including—

(i) the value in aggregate terms and in pounds sterling of transactions cleared by the applicant, or the aggregate exposure of the applicant engaged in clearing activities to its clearing members and, to the extent the information is available, their clients and indirect clients established in the United Kingdom, including where they have been identified by the PRA as other systemically important institutions (O-SIIs) in accordance with regulation 29 of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014( 12); and

(ii) the risk profile of the applicant in terms of, amongst other things, legal, operational and business risk;

(b) the effect that the failure of, or a disruption to, the applicant would have on—

(i) financial markets, including the liquidity of the markets served;

(ii) financial institutions;

(iii) the broader financial system; or

(iv) the financial stability of the United Kingdom;

(c) the applicant's clearing membership structure including, to the extent the information is available, the structure of its clearing members' network of clients and indirect clients, established in the United Kingdom;

(d) the extent to which alternative clearing services provided by other central counterparties exist for clearing members and, to the extent the information is available, their clients and indirect clients established in the United Kingdom;

(e) the applicant's relationships, interdependencies, or other interactions with other financial market infrastructures, other financial institutions and the broader financial system to the extent that it is likely to have an impact on the financial stability of the United Kingdom.

(2) Without prejudice to the outcome of determination under regulation 13, the Bank of England must, after conducting the assessment in accordance with paragraph (1), inform the applicant whether it is considered to be a Tier 1 or Tier 2 CCP.

(3) On and after IP completion day, an assessment under this regulation is to be taken as having been carried out in accordance with Article 25.2a of the EMIR Regulation.

Conditions for Tier 2 CCPs

13B.—(1) Where...

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