Eugene Grygo, Chief Content Officer, FTF News
Lost amid all the hot air about Brexit are the many global securities operations that will be disrupted when the U.K. leaves the E.U.
One of the more contentious issues for global firms will be how to sort out their interactions with central counterparty clearinghouses (CCPs) based in the U.K. and Europe especially if there is a “no-deal” or hard Brexit. There are multiple negative scenarios for European CCPs if there is a hard Brexit and chaos.
All is not lost as over the past month European authorities and industry groups have been signaling that there will be contingencies.
Officials at the European Securities and Markets Authority (ESMA) report that the European Commission (EC) “will adopt a temporary and conditional equivalence decision in order to ensure that there will be no disruption to central clearing.”
In a public statement last month, the ESMA board of supervisors says that it supports “continued access to UK CCPs to limit the risk of disruption in central clearing and to avoid negatively impacting EU financial market stability.”
In fact, ESMA is blessing the EC’s “Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019: a Contingency Action Plan,” which was published last month. The EC will act “to address financial stability risks in the EU arising from the withdrawal of the UK without any agreement.”
ESMA is likely to continue to work behind the scenes on this issue. (ESAM coordinate with the European System of Financial Supervision (ESFS), the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), the European Systemic Risk Board, and national authorities with competencies in securities markets or NCAs.)
Another major voice has chimed in — the European clearinghouses themselves.
On Dec. 14, the European Association of CCP Clearing Houses (EACH) announced that it “welcomes the communication of the European Commission regarding a temporary and conditional regime for equivalence and recognition of UK CCPs in the EU. Such a regime would ensure the continuity of critical clearing services for EU clearing members in case the withdrawal of the UK from the EU occurs without an agreement (i.e. ‘no-deal’). EACH has welcomed similar statements from the Bank of England for the temporary recognition of EU CCPs in the UK.”
In addition, EACH is pushing for a legal certainty for clearing activities by having EU law support “the possibility of a temporary and conditional equivalence regime. This would provide the legal certainty needed for market participants to cope with a ‘no-deal’ scenario in the least disruptive manner, meeting the end goal of ensuring a smooth transition from authorization to temporary recognition for UK CCPs.
“EACH also requests a reciprocal approach by UK authorities and therefore welcomes the steps already taken by UK authorities to enshrine into UK law a temporary and conditional equivalence regime for EU CCPs,” according to the EACH announcement. (The EACH membership includes Eurex Clearing, EuroCCP, ICE Clear Europe, KDPW_CCP, LCH Ltd., LCH SA, LME Clear, Nasdaq Clearing and SIX x-clear.)
So, there is a hint of optimism if there is a hard Brexit. Of course, all of this could be avoided if there is a “soft” well negotiated Brexit. Or, if there is no Brexit at all.
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