Under the European regulation (EU) No 648/2012 of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR), the entities interposing themselves between the counterparties to the contracts traded on one or more financial markets, namely the central counterparties (CCPs), established in a third country to the European Union (EU), may only provide clearing services (i.e. establish positions, including the calculation of net obligations, and ensure that financial instruments and/or cash are available to secure the transactions) in the EU where they are recognised by the European Securities and Markets Authorities (ESMA).
As a consequence, as from the date when the United Kingdom effectively leaves the EU, some of the most important European CCPs will not be able to provide services to European clearing members any longer unless they are recognised by the ESMA.
It is in this context that the European Commission and the Parliament published last summer three delegated regulations, which came into force in late September, aiming at specifying the conditions governing inter alia the recognition of third-country CCPs. One of these regulations especially focuses on the minimum elements to be assessed by the ESMA when assessing third-country CCPs’ requests for comparable compliance and the modalities and conditions of this assessment.
In addition to these EMIR delegated regulations, the European Commission also adopted, as article 25(6) of EMIR authorizes it to do so, an implementing regulation specifying that from 1 January 2021 to 30 June 2022, the legal and supervisory arrangements of the UK and Northern Ireland applicable to CCPs already established and authorised in these jurisdictions shall be considered to be equivalent to the requirements laid down in EMIR regulation.
On this basis, ESMA announced on 28 September that after assessing their submission, ICE Clear Europe Limited, LCH Limited and LME Clear Limited would be recognised as third country CCPs eligible to provide their services in the EU after the end of the transition period following the withdrawal of the UK from the EU on 31 December 2020. ESMA also specifies in this announcement that, in accordance with article 25 of EMIR regulation, it agreed with the Bank of England a new Memorandum of Understanding (MoU) establishing the necessary cooperation arrangements for the recognition and supervision of UK CCPs under EMIR. As per EMIR, this MoU should at least specify: (i) the mechanism for the exchange of information between ESMA and the UK competent authorities; (ii) the mechanism for prompt notification to ESMA (a) where a UK competent authority deems a CCP it is supervising to be in breach of the conditions of its authorisation and where (b) a CCP has been granted the right to provide clearing services to clients established in the Union; and (iii) the procedures concerning the coordination of supervisory activities, including on-site inspections.
As a consequence of the above, the three aforementioned British CCPs will be able, at least until 30 June 2022, to provide their services in the EU.