European Commission adopts conditional equivalence for CCPs and CSDs post-Brexit

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK
December 19, 2018

After examining the risks linked to a no deal scenario in the financial sector, and taking into account the views of the European Central Bank and the European Supervisory Authorities, the Commission has concluded that only a limited number of contingency measures is necessary to safeguard financial stability in the EU27. These measures mitigate financial stability risks only in those areas where preparedness actions from market operators alone are clearly insufficient to address these risks by the withdrawal date. The Commission has therefore today adopted the following acts that will apply from the withdrawal date if the Withdrawal Agreement is not ratified:

  • A temporary and conditional equivalence decisioni for 12 months to ensure that there will be no disruption in central clearing of derivatives. This will allow the European Securities and Markets Authority (ESMA) to recognise temporarily central counterparties currently established in the United Kingdom, allowing them temporarily to continue providing services in the Union. The Commission has concluded that EU27 companies need this time to have in place fully viable alternatives to UK operators.
  • A temporary and conditional equivalence decisionii for 24 months to ensure that there will be no disruption in services provided by UK central securities depositories. It will temporarily allow them to continue providing notary and central maintenance services to operators in the Union. This will allow EU27 operators that currently have no immediately available alternative in the EU27 to fulfil their obligations under EU law.

In response, the Bank of England said:

The implementing acts adopted by the Commission are necessary to allow UK CCPs and CSDs to be recognised by the European Securities and Markets Authority (ESMA). In a no-deal Brexit scenario they would come into effect from 30 March 2019. Recognition would allow UK CCPs to continue to provide clearing services to their EU members, and EU banks to meet their obligations to UK CCPs.

Today’s announcement is a crucial and positive step. It provides necessary clarity and addresses one of the most important financial stability risks associated with the UK’s withdrawal from the EU.

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