UK issues equivalence pathway for EU CCPs

HM Treasury equivalence decisions for the EEA States – 9 November 2020

The European Market Infrastructure Regulation (Article 13) Equivalence Directions 2020 will grant equivalence to the EEA States for the intragroup exemption in Article 13 of the European Market Infrastructure Regulation which will form part of UK law at the end of the Transition Period (‘EMIR’). We are granting a partial Article 13 decision in relation to the intragroup exemption in regard to activities subject to the clearing obligation (Article 4) and Over The Counter (‘OTC’) derivative margin requirements (Article 11). This decision paves the way for UK firms to seek or apply an exemption from the requirement to clear through a Central Counterparty (‘CCP’) or meet margin requirements for transactions with an EEA State entity in the same group. Granting this decision means these exposures can qualify as intragroup exposures in the credit valuation adjustment (CVA) calculation, ensuring that UK firms will in many cases not have to capitalise CVA on OTC exposures to EEA State affiliates.

The Central Counterparties (Equivalence) Regulations 2020 will grant equivalence to central counterparties (‘CCPs’) established in EEA States. Therefore, subject to entry into an appropriate cooperation arrangement between the Bank of England and the relevant national competent authority in that EEA state, and a CCP-specific recognition determination by the Bank of England, after the end of the transition period UK firms will be able to continue using EEA CCPs. This equivalence decision does not exclude EEA CCPs from the Temporary Recognition Regime (‘TRR’). Until recognition decisions are made, EEA CCPs who meet the relevant eligibility criteria will remain in the TRR, which is due to last until December 2023 and may be extended by HMT.

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