What are the potential implications of Brexit on CCPs?

What are the potential implications of Brexit on CCPs?

Timothy G Massad (TM), former chairman of the Commodities Futures Trading Commission and Eddy Wymeersch (EW), Chairman of the Public Interest Oversight Board, and both P.R.I.M.E. Finance Experts, discuss the potential implications of Brexit for central counterparties (CCPs).

What are the potential implications for CCPs?

TM

: Consider it two ways:

  • the implications for EU CCPs under UK law
  • the implications for UK CCPs under EU law

First, when the UK exits from the EU, the UK must have its own legal regime for third country CCPs in place. The UK has taken steps to do that by essentially adopting legislation similar to the existing EU regime. That EU regime provides that a third country’s legal and supervisory regime for CCPs must be deemed equivalent to the EU, and individual CCPs must be recognised by the European Securities and Markets Authority (ESMA). The UK has adopted a similar procedure, with a transition period so as to avoid any interruption in the ability of non-UK CCPs to provide services.

Second, the EU has proposed important changes to its own regime which were motivated in part by Brexit, although not necessitated by it. That is, the EU technically could have left its laws as is and treated UK CCPs as third country CCPs. But after Brexit, some were concerned about the high volume of clearing of euro-denominated instruments in the UK, and the EU has proposed changes that address that concern. These changes, if adopted, would create a two-tiered system for equivalence and recognition. Specifically, it would result in a more rigorous recognition and supervisory process for third country (non-EU) CCPs that are deemed of systemic importance to the EU. This would have consequences for CCPs in the UK, the US and potentially elsewhere.

EW: The consequences of Brexit on CCPs have to be analysed from the UK and from the EU side differently, and both are evidently related.

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About the author:

Meet Emma:

1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.Likes ballet, playing the harp and holidays

3.Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.