Bank of England statement on the European Commission equivalence decision on the future UK legal and supervisory framework for central counterparties (CCPs)

The decision is an important step to mitigate financial stability risks around the end of the year when the implementation period following the UK’s exit from the EU comes to an end. However, this equivalence decision is time-limited and will expire in June 2022.

The decision will avoid EU financial firms having to exit UK clearing houses before the end of the year. This would have led to the transfer and replacement of a very large number of contracts in a short period.

As of August 2020 there were £60 trillion of derivative contracts between UK CCPs and EU clearing members, £43 trillion of which was due to expire after December.  

Both the UK and EU have publicly recognised that avoiding this cliff-edge is in the interest of international financial stability. This has been highlighted by the Bank of England’s Financial Policy Committee consistently since 2018.  

Today’s decision will allow the European authorities to finalise the remaining steps for recognition of UK CCPs. These will enable UK CCPs to continue to provide clearing services to their EU members, and EU banks to continue meet their obligations to UK CCPs.   

In the UK, HM Treasury and the Bank of England have already put in place a temporary recognition regime for non-UK CCPs. From 1 January 2021 this will enable EU CCPs to continue to provide services in the UK.

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