The European Commission today implemented a Contingency Action Plan for a number of specific sectors in the event of a no-deal Brexit, including adopting acts to provide temporary and conditional equivalence to UK CCPs and central depositary services, as well as two delegated regulations to facilitate the novation of certain OTC derivatives.
In particular, the Commission said that “After a thorough examination of the risks linked to a no deal scenario in the financial sector, the Commission has found that only a limited number of contingency measures is necessary to safeguard financial stability in the EU27.”
The Commission has therefore adopted today the following acts:
- A temporary and conditional equivalence decision for a fixed, limited period of 12 months with respect to UK CCPs to ensure that there will be no immediate disruption in the central clearing of derivatives.
- A temporary and conditional equivalence decision for a fixed, limited period of 24 months with respect to UK Central Depositories to ensure that there will be no disruption in central depositaries services for EU operators currently using UK operators.
- Two Delegated Regulations (regarding the date at which the clearing obligation takes effect for certain types of contracts and regarding the date until which counterparties may continue to apply risk management procedures for certain OTC contracts not cleared by a CCP) facilitating novation, for a fixed period of 12 months, of certain over-the-counter derivatives contracts, where a contract is transferred from a UK to an EU27 counterparty. These Delegated Regulations require a three-month scrutiny period, although the Commission has called on co-legislators to fast-track adoption by informing it before the end of the scrutiny period that they do not object to the acts.
Today's package includes 14 measures in a limited number of areas where a "no-deal" scenario would create major disruption for citizens and businesses in the EU27, including financial services, air transport, customs, and climate policy, amongst others.
In announcing the package, Commission Vice President Valdis Dombrovskis said the measures were designed to address potential major disruptions and ‘limiting the damage’ caused by a "no-deal" Brexit. He also hoped it would facilitate a "soft landing."
The Commission emphasised that “These measures will not – and cannot – mitigate the overall impact of a "no-deal" scenario, nor do they in any way compensate for the lack of stakeholder preparedness or replicate the full benefits of EU membership or the terms of any transition period, as provided for in the Withdrawal Agreement.” The specific areas covered were felt to be those where it was absolutely necessary to protect the vital interests of the EU and “where preparedness measures on their own are not sufficient."
The Commission said it will continue to implement its Contingency Action Plan in the coming weeks and will monitor the need for additional action, as well as continue to support Member States in their preparedness work.
ESMA has confirmed that it is ready to review UK CCPs’ and CSDs’ recognition applications for a no-deal Brexit scenario and that “to ensure continued access to UK CCPs for EU clearing members and trading venues, ESMA aims to adopt the recognition decisions well ahead Brexit date.” Similarly to the equivalence decision, they will take effect on the date following Brexit date, under a no-deal Brexit scenario.
ESMA said The Bank of England has already confirmed that it will provide information to ESMA in line with its current obligations and those set out in the equivalence decision. Based on these assurances ESMA expects that the MoU will be agreed by the end of January. The MoU, like the equivalence decision, will take effect from the date following Brexit date, under a no-deal Brexit scenario.
BoE, meanwhile, has issued a statement welcoming the Commission’s announcement. “In the UK, HM Treasury and the Bank of England have already put in place a temporary recognition regime for non-UK CCPs and a transitional regime for non-UK CSDs. These will enable EU CCPs and CSDs to continue to provide services in the UK in a no-deal Brexit scenario.
"The practical arrangements to implement these equivalence decisions now need to be put in place. This includes agreeing the necessary cooperation and information-sharing arrangements between the Bank and ESMA. The Bank has already confirmed to ESMA that it will provide information in line with its current obligations and those set out in the equivalence decisions,” the statement continued.
LCH confirmed to members and the industry that it will continue to offer clearing services to all members after 29 March 2019 and “has decided not to serve the three month notice of retirement to EU domiciled members under Regulation 5(i) of the Rulebook."