Policy paper

Financial Services & Markets Bill Amendments – Overseas Central Counterparties

Published 26 May 2023

This was published under the 2022 to 2024 Sunak Conservative government

Following EU exit, HM Treasury established a Temporary Recognition Regime (TRR) to enable eligible non-UK central counterparties (CCPs) to continue to provide clearing services to UK firms whilst equivalence and recognition assessments were ongoing. A “run-off” regime was also established to enable non-UK CCPs that exited the TRR without recognition to wind down relevant contracts and business with UK counterparties in an orderly manner. The length of the run-off is determined by the Bank of England (the Bank) for each CCP, with a current maximum period of one year.

In January 2023, HM Treasury introduced an amendment[1] at paragraph 51 of Schedule 2 to the Financial Services and Markets Bill (FSM Bill) which, if enacted, would give the Bank 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 allow the Bank to grant CCPs in the run-off regime further time to apply for recognition if they wished to do so, while ensuring that the relevant CCPs can continue to offer services to UK firms during that period. The Bank published a statement[2] on its expected use of this power following this amendment being introduced. The Bank also maintains a list of CCPs in the run-off regime[3], some of which are currently due to exit the regime with effect from 1 July 2023. This amendment was agreed to at Committee Stage of the Bill in the House of Lords on 25 January 2023.

The FSM Bill continues to progress through Parliament as planned. However, the exact timings of its Royal Assent are subject to parliamentary timetabling. To ensure that the extension to the run-off period functions as intended, HM Treasury has therefore introduced two further technical amendments to the FSM Bill[4].

Both these further amendments are subject to Parliamentary consent. If this is received, the first amendment would ensure that the power for the Bank to extend the maximum run-off period comes into force on Royal Assent. The second amendment would, in the event of a gap between a CCP’s exit from the run-off regime and Royal Assent, provide for the Bank to be able to determine that a CCP’s run-off period is to be treated as not having expired, from the making of the determination onwards. Therefore, if a non-UK CCP leaves the run-off regime before the Bank’s power to extend the maximum run-off period comes into force, the Bank would be able to exercise its power to vary the run-off period up to the maximum period of three years and six months from when the CCP first entered it. This power would also come into force on Royal Assent of the Bill.

These two further amendments therefore seek to facilitate the continuity of services to UK firms under the run-off regime by providing contingencies should the Royal Assent of the Bill be secured after 30 June 2023 and by ensuring this provision and the January 2023 amendment come into force immediately upon Royal Assent. HM Treasury has been liaising with the Financial Conduct Authority, the Prudential Regulation Authority, and the Bank (the regulators) on these matters. The regulators have published a joint statement[5] in relation to these amendments.

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[1] Committee Stage Amendments January 2023 – FSM Bill (bills.parliament.uk)

[2] Statement on January 2023 Bill Amendment (bankofengland.co.uk)

[3] Temporary Recognised non-UK CCPs (bankofengland.co.uk)

[4] Report Stage Amendments May 2023 – FSM Bill (bills.parliament.uk)

[5] Joint statement from FCA, PRA and Bank of England on the government’s proposed amendments to the CCP run-off regime (bankofengland.co.uk) (fca.org.uk)