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CFTC and Bank of England Issue Joint Statement on Post-Brexit Derivatives Trading and Clearing
Practical Law Legal Update w-019-2362 (Approx. 4 pages)
CFTC and Bank of England Issue Joint Statement on Post-Brexit Derivatives Trading and Clearing
by Practical Law Finance
| Published on 28 Feb 2019 • USA (National/Federal) |
The CFTC and the Bank of England issued a joint statement assuring market participants of the continuity of derivatives trading and clearing activities between the US and UK after the UK's withdrawal from the European Union (EU).
On February 25, 2019, the CFTC and the Bank of England (BoE), as the relevant regulators of the US and UK derivatives markets, respectively (collectively, the regulators), issued a joint statement intended to assure market participants of the continuity of derivatives trading and clearing activities between the US and the UK after the UK's withdrawal from the European Union (EU).
The statement emphasizes that Brexit "will not create regulatory uncertainty regarding derivatives market activity between the UK and US." The statement also reaffirms the regulators' commitment to cooperation and agreement to coordinate on certain measures to provide continuity in the derivatives markets upon Brexit, including:
- Continued supervisory cooperation through arrangements to support cross-border oversight of the derivatives markets, pursuant to which:
- the regulators are in the process of updating their 2009 memorandum of understanding (MOU), which covers the supervision of cross-border clearing organizations, in connection with the UK's forthcoming decisions regarding the recognition of CFTC-registered central clearing counterparties (CCPs); and
- the CFTC and FCA are in the process of updating their July 2013 MOU and their October 2016 MOU covering cooperation related to the supervision of certain firms in the derivatives and alternative investment fund industry.
- The extension of existing CFTC relief to the UK through the issuance of new no-action letters that confirm the continued application to UK entities of existing relief issued to the EU, including relief relating to:
- registration with the CFTC as introducing brokers (IBs) or commodity trading advisers (CTA)s (see No-Action Letter 12-70);
- risk mitigation rules for the largest counterparty swap market participants (see Legal Update, CFTC and EU Reach Accord on Derivatives Regulation; CFTC Issues Cross-border Guidance and Relief);
- swap data reporting requirements for non-US swap dealers (SDs) and major swap participants (MSPs) (see Legal Update, CFTC Issues Fifth Extension of Relief for Certain Non-US Swap Dealers from SDR Reporting Rules); and
- the trading and clearing of inter-affiliate swaps (see Legal Update, CFTC Issues Fifth Extension of Inter-Affiliate Swap Clearing Exemption).
- The extension of CFTC regulatory relief to UK firms through the granting of new substituted compliance and exemption orders confirming that the existing orders issued to the EU will also be extended to the UK, relating to:
- certain transaction-level requirements for uncleared swaps (see Practice Note, The Dodd-Frank Act: Cross-Border Application of Swaps Rules: Rules for Swap Dealers and MSPs in Certain Jurisdictions);
- certain margin requirements for uncleared swaps (see Legal Update, CFTC-EU Reach Agreement on Uncleared Swap Margin Equivalence and Approach to Trading Venues); and
- certain trade-execution requirements (see Legal Update, EU and CFTC Issue Equivalence Decisions on Derivatives Trading Venues).
- The extension of CFTC regulatory relief to UK firms through the confirmation that UK CCPs currently registered with the CFTC will be able to continue to provide services in the US.
- UK equivalence for US trading venues, firms, and CCPs that are currently providing services in the UK as a result of European Commission (EC) decisions declaring the CFTC regulatory framework equivalent, so that these firms may continue to provide services in the UK (see Legal Updates, European Commission Adopts Equivalence Decision for US CCP Regulatory Regime and EU and CFTC Issue Equivalence Decisions on Derivatives Trading Venues). UK firms will continue to be able to access these entities on the same basis as EU firms as a result of:
- confirmation from HM Treasury that EC decisions declaring the CFTC regulatory framework equivalent in relation to risk mitigation requirements and trading venues, including margin requirements, will continue to apply after the UK’s withdrawal from the EU;
- the issuance of equivalence and recognition decisions from HM Treasury and the BoE in relation to CFTC-registered CCPs; and
- confirmation from the BoE that US CCPs will be able to continue providing services in the UK using the UK’s temporary recognition regime (TRR) for non-UK CCPs if the UK withdraws from the EU before there is a decision relating to CFTC-registered CCPs,. The TRR will allow eligible non-UK CCPs for which recognition decisions have not been made to continue providing clearing services in the UK for a limited period after Brexit.
In addition, BoE governor Mark Carney, CFTC chairman J. Christopher Giancarlo, FCA chief executive Andrew Bailey, and chancellor of the exchequer Philip Hammond provided individual statements related to their respective regulator's commitment to cooperation in furtherance of the continued stability of the derivatives markets after the UK's withdrawal.