CFTC and BOE Sign New MOU for Supervision of Cross-Border Clearing Organizations

CFTC Chairman, Heath P. Tarbert, and BoE Deputy Governor for Financial Stability, Jon Cunliffe, published a joint op-ed for outlining the agreement.

The MoU strengthens the relationship between the regulators responsible for the resilience of the largest and most important derivatives markets and central counterparties (CCPs) in the world. The supervision of CCPs that operate in both the United States and the United Kingdom is based upon close cooperation and mutual respect for each regulator’s regime and supervisory practices. Through the MOU, the CFTC and the BoE express their willingness to cooperate in the interest of fulfilling their respective regulatory mandates, particularly in preserving the benefits of cross-border clearing activity. The MOU also recognizes the history of cooperation between the CFTC and BoE and encourages supervisory coordination and reliance upon the other authority’s supervision and regulatory framework.

The MOU supersedes a 2009 agreement and follows a 2019 joint statement by the CFTC, BoE, and other UK authorities on continuity of derivatives trading and clearing post-Brexit. 

PDFMemorandum of Understanding


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Statistical Notice 2020/10 | Bank of England

1. Cash Ratio Deposit (effective immediately)

Cash Ratio Deposits (CRDs) are non-interest bearing deposits lodged with the Bank of England by eligible institutions (i.e. banks and building societies), who have reported average eligible liabilities (ELs) in excess of £600 million over a six-month calculation period. The level of each institution’s CRD is calculated twice yearly (in May and November).

The applicable ratio for the next adjustment to CRDs, due on Monday 1 December 2020, will be published on the Bank’s website on 19 November 2020, the Bank will issue call notices to CRD-payers (which will include this revised CRD ratio) shortly thereafter. This CRD ratio will be applied to average ELs in excess of £600 million over the previous six end-calendar months. Further information on how the applicable ratio is calculated can be found here.

You will be contacted shortly asking for your updated contact details. Please ensure your details are correct and returned to the Data Reception team by the deadline set on the request form.

The deadline for revisions to ELs to be reflected in the December adjustment is 5pm on Tuesday 17 November 2020.


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Elisabeth Stheeman reappointed to the Financial Policy Committee

Elisabeth’s first term as an external member of the Financial Policy Committee ends on 11 February 2021. Her second 3-year term will end on 11 February 2024.

Further information

Elisabeth was appointed to the FPC in November 2017 and started her role at the end of February 2018. She has been an external member of the Bank of England’s FMI (Financial Market Infrastructure) Board since July 2017.

Elisabeth is currently also a member of the Supervisory Board of Aareal Bank AG, the third largest listed bank in Germany, the deputy chair of the Risk Committee as well as member of the Technology and Innovation Committee. She is also a non-executive director of Edinburgh Investment Trust (EIT) plc, a FTSE 250 listed investment trust, primarily investing in UK securities (total assets £1 billion).

Previously, Elisabeth was a Senior Advisor to the Bank of England’s Prudential Regulation Authority (2015-18). Prior to this, Elisabeth worked for over 25 years in the financial services industry, including in roles as a Chief Operating Officer in Investment Banking at Morgan Stanley (2007 to 2012), and as a Global Chief Operating Officer for LaSalle Investment Management (2013 to 2014). Elisabeth’s expertise extends across a wide range of areas including capital markets, investment banking, real estate and private equity.

About the Financial Policy Committee

  • The FPC is the UK’s macroprudential regulator: its objective is to protect and enhance the stability of the UK’s financial system by identifying, monitoring and addressing systemic risks.
  • The FPC has thirteen members. Six of them are Bank of England staff: the Governor, four Deputy Governors and the Executive Director for Financial Stability Strategy and Risk.
  • There are also five external members who are selected from outside the Bank for their experience and expertise in financial services.
  • The Committee also includes the Chief Executive of the Financial Conduct Authority and one non-voting member from HM Treasury.


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Update on the Covid Corporate Financing Facility (CCFF) – Market Notice 9 October 2020

Closure of the CCFF 

The CCFF, which was launched in March 2020, has helped eligible businesses bridge Covid-19 related temporary disruption to their cash flows.

CCFF usage has reduced in recent months. As at close of business on 7 October, the outstanding stock of Commercial Paper (CP) held by the CCFF was £15,849mn, its lowest level since April; and lower than its peak of £20,498mn in May. Total weekly purchases have averaged £184mn since the start of September; much lower than an average of £2,028mn over the period 23 March to 24 June. The pipeline of new applications to the CCFF has also tailed off.

Consistent with this reduction in usage, on 22 September 2020 the Bank and HM Treasury confirmed that the CCFF will close for new purchases of CP with effect from 23 March 2021. This is in line with the initial Market Notice of 18 March 2020, and consistent with current improved market conditions. 

Firms deemed to be investment grade equivalent as at 1 March 2020, and who make a material contribution to the UK economy, remain eligible in principle to apply to participate in the CCFF.  As announced on 22 September, new applications to participate in the CCFF will be accepted until 31 December 2020, subject to the enhanced credit quality review process described below.

Credit quality review for new issuance into the CCFF

To support orderly repayment of CP the credit quality of eligible issuers in the CCFF is reviewed on an ongoing basis. (Eligible issuers here refers to all firms eligible for the CCFF, irrespective of whether those firms have outstanding drawings under the CCFF) 

With effect from 9 October 2020 this process will be enhanced. Any eligible issuer wanting to issue new CP into the CCFF after that date will be subject to a review to consider whether that issuance remains in line with the purpose of the facility. (‘New CP’ includes an issuer’s first issue of CP and any subsequent issue of CP, for instance in order to replace maturing CP)

Where an issuer wanting to issue CP into the CCFF after 9 October has a current credit rating (or equivalent) of investment grade (that is, at or above a short-term rating of A3/P3/F3/R3 or equivalent, or a long-term rating of BBB-/Baa3/BBB-/BBB low or equivalent), it can expect to be able to proceed to issue CP into the CCFF, subject to (i) providing supporting evidence as detailed below and (ii) the issuer’s approved drawing limit.

In cases where an issuer’s credit rating (or equivalent) has fallen below levels deemed equivalent to investment grade, the issuer will have the option to pursue a review on which HM Treasury, as the ultimate risk-owner of the CCFF, will take the final decision. The review will consider whether the issuer’s use of the CCFF remains within the purpose of the facility, which has always been to provide short term liquidity support to fundamentally strong businesses.

Process for new issuance into the CCFF

In order to support the revised credit quality requirements, eligible issuers should notify the Bank ( of their intention to sell new CP into the CCFF no later than 11am five Business Days prior to their requested sale date. The Bank will endeavor to confirm within that timeframe whether the transaction can proceed on that requested sale date.

The notification should include the issuer’s recent credit rating or equivalent evidence of investment grade credit quality, to a comparable standard to the evidence submitted to establish initial eligibility for the CCFF. 

Where a ‘point in time’ rating is obtained from a Credit Rating Agency, evidence of current investment grade status must date from no longer than eight weeks before the proposed date of issuance. 

As part of any review, supporting information will be requested from issuers. The outcome of this review – a decision on whether the issuer can issue new CP into the CCFF – will be communicated to the issuer once the review is complete. The review should be expected to take at least four weeks to complete, which may mean that issuance cannot take place on the issuer’s requested date.

In light of the changes to the CCFF outlined in this Market Notice, where appropriate HM Treasury as the ultimate risk-owner of the of the CCFF may, in its sole discretion, allow an issuer to issue new CP into the CCFF while the review process is undertaken. This will be decided on a case-by-case basis on request by the issuer.

An update on drawing limits 

In addition to the enhanced review process described above, from 9 October any firm whose long-term credit rating falls to, or below, BBB-/Baa3/BBB (low) or equivalent after 1 March 2020 will have their aggregate drawing limit capped at a maximum of £300 million.  

This will not affect outstanding drawings if already in excess of £300 million.

Maintaining current drawings

The changes set out above do not affect outstanding issuance of CP which the CCFF will continue to hold until maturity unless, under the existing terms of the scheme, outstanding CP is repurchased early by the issuer.

Further information

HM Treasury retains the right, in its sole discretion, to vary the terms of access for any firm at any time, including, but not limited to, drawing limits. Each of the Bank and HM Treasury reserves the right, in its sole discretion, to deem any firm ineligible for any reason after taking into account the information available to it. 

Other than as amended by this Market Notice, the Market Notice published on 3 August 2020 and the Market Notice published on 22 September 2020, the Terms and Conditions and Operating Procedures for participation in the CCFF will apply to transactions under this Facility.


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Central banks and BIS publish first central bank digital currency (CBDC) report laying out key requirements

News release

  • Seven central banks and BIS release report assessing the feasibility of publicly available CBDCs in helping central banks deliver their public policy objectives.
  • Report outlines foundational principles and core features of a CBDC, but does not give an opinion on whether to issue.
  • Central banks to continue investigating CBDC feasibility without committing to issuance.

A group of seven central banks together with the Bank for International Settlements (BIS) today published a report identifying the foundational principles necessary for any publicly available CBDCs to help central banks meet their public policy objectives.

The report, Central bank digital currencies: foundational principles and core features, was compiled by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the BIS, and highlights three key principles for a CBDC:

  • Coexistence with cash and other types of money in a flexible and innovative payment system.
  • Any introduction should support wider policy objectives and do no harm to monetary and financial stability.
  • Features should promote innovation and efficiency.

The group of central banks will continue to work together on CBDCs, without prejudging any decision on whether or not to introduce CBDCs in their jurisdictions.

“This report is a real step forward for this group of central banks in agreeing the common principles and identifying the key features we believe would be needed for a workable CBDC system. As well as helping central banks to meet their public policy objectives, the report provides a useful framework for how central banks provide money and support payment systems in an ever-evolving digital world. This group of central banks has built a strong international consensus which will help light the way as we each explore the case and design for CBDCs in our own jurisdictions,” said working group co-chair Sir Jon Cunliffe, Deputy Governor of the Bank of England and Chair of the Committee on Payments and Market Infrastructures.

Based on these principles, the group has identified the core features of any future CBDC system, which must be:

  • Resilient and secure to maintain operational integrity.
  • Convenient and available at very low or no cost to end users.
  • Underpinned by appropriate standards a clear legal framework.
  • Have an appropriate role for the private sector, as well as promoting competition and innovation.

“A design that delivers these features can promote more resilient, efficient, inclusive and innovative payments. Although there will be no one “one size fits all” CBDC due to national priorities and circumstances, our report provides a springboard for further development of workable CBDCs,” said working group co-chair Benoît Cœuré, Head of the BIS Innovation Hub.

Further development requires a commitment to practical policy analysis and applied technical experimentation. While this has already started, the speed of innovation in payments and money-related technologies requires the prioritisation of collaborative experimentation.

In welcoming the report produced by the group of central banks and the Bank for International Settlements, Governor of the Bank of England Andrew Bailey said:

“This report represents a significant step forward for central banks. As I have said, CBDCs may offer great opportunities, but they also raise profound questions about the shape of the financial system and the role of the central bank. Having a common set of principles will help us work more closely with our international colleagues on these important matters.”

“While technology is changing the way we pay, central banks have the duty to safeguard people’s trust in our money. Central banks must complement their domestic efforts with close cooperation to guide exploration of central bank digital currencies to identify reliable principles and encourage innovation. The present report is a convincing proof of this international cooperation”, said Christine Lagarde, President of the European Central Bank, who chairs the group of central bank governors in charge of the report.

Activities will include exploring other open questions around CBDCs, the challenges of cross-border payments, as well as continuing outreach domestically and with other central banks to foster informed dialogue on key issues. Work by the BIS Innovation Hub, which serves the broader central banking community, will contribute to this objective.


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Financial Policy Summary and Record – October 2020

The UK authorities and financial sector have measures in place to limit disruption to financial services at the end of the transition period, following the UK’s exit from the EU

Most risks to UK financial stability that could arise from disruption to cross-border financial services have been mitigated, even if the transition period ends without the UK and EU agreeing further arrangements for financial services. This reflects extensive preparations made by authorities and the private sector.

However, some disruption to financial services could arise, particularly for EU-based clients, even if it does not pose a risk to financial stability.

Banks and other financial institutions have made further preparations for the end of the transition period. And it is important that they continue to do so to minimise the risk of disruption.

Irrespective of the particular form of the UK’s future relationship with the EU, we will remain committed to the implementation of robust prudential standards in the UK.

Our UK-EU preparations


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The FCA and the Bank of England encourage market participants in further switch to SONIA in interest rate swap markets

A key milestone recommended by the Working Group on Sterling Risk-Free Reference Rates (‘the Working Group’) is to cease initiation of new GBP LIBOR linked linear derivatives expiring after 2021 by end-Q1 2021, other than for risk management of existing positions.

In support of this milestone, the FCA has engaged with interest rate swap liquidity providers as well as interdealer brokers to determine support for a change in the quoting conventions of sterling interest rate swaps in the interdealer market. An FCA survey of liquidity providers identified strong support for a change in the interdealer quoting convention that would see SONIA rather than LIBOR become the default price from 27 October 2020, subject to prevailing market conditions at that time.

The survey also showed a large majority supported a move away from the use of GBP LIBOR forward rate agreements to use of single period swaps which benefit from greater compatibility with the anticipated ISDA IBOR Fallbacks protocol.

The full survey and its results can be seen below.

This proposal has also been endorsed by the Working Group, and has been included as an update to its roadmap for transition in sterling markets.

The FCA and the Bank of England therefore support and encourage all participants in these interdealer markets to take the steps necessary to prepare for and implement these changes to market conventions. A previously planned initiative to accelerate a change in quoting conventions, which was due to have taken place in March 2020, was disrupted by the impact of Covid-19. In the period leading up to 27 October, the FCA and the Bank of England will engage with market participants to determine whether market conditions allow the switch to proceed smoothly in October.

The market for SONIA derivatives is already well-established. These changes are intended to support a further move of new sterling swaps trading to SONIA and reduce risk by limiting new LIBOR exposures. SONIA derivatives are likely to be the appropriate market convention for most contracts, particularly those maturing after 2021. The number of cases where LIBOR contracts are preferred by market participants is expected to reduce significantly as the end of 2021 approaches. Where new LIBOR transactions are entered into, market participants should be aware of the risks and take appropriate steps to establish that their clients are too.

Technical background – what does this convention switch mean in practice?

The proposed change will involve interdealer brokers (IDBs) moving the primary basis of their pricing screens and curve construction for interest rate swaps from GBP LIBOR to SONIA. At present, SONIA swaps are priced by default by reference to a LIBOR swap adjusted by the LIBOR-SONIA basis. As a result of this change, SONIA swaps would be the primary pricing point. LIBOR swaps would therefore be priced by reference to SONIA swaps adjusted by the LIBOR-SONIA basis.

The same change would be made in the primary trading of swaps against bond futures in sterling markets, such that the default pricing will show SONIA swaps relative to gilt futures.

Finally, where participants currently trade LIBOR forward rate agreements (FRAs), the default trade structure would change to LIBOR Single Period Swaps (SPS). These two trading structures fulfil similar economic functions, but use of SPS provides much greater compatibility with the fallback approach expected to be introduced through ISDA documentation for derivative markets.

These changes would not prohibit trading in GBP LIBOR swaps, but they would mean that the primary source of pricing and liquidity will switch from GBP LIBOR swaps to SONIA swaps. This, in turn, should encourage a greater proportion of swap trading volumes to switch to SONIA.

Survey results

Total respondents: 20

Q1. Should a ‘SONIA-First’ Convention Switch for derivative trading be attempted? Yes / No.

95% of respondents selected ‘Yes’ to this question.

Q2. If you answered Q1 with Yes: Do you think a switch on 27 October 2020 would be an appropriate date for the interdealer Interest Rate Swaps market?

89% of respondents who selected ‘Yes’ to the first question supported the 27 October date.

Q3. In GBP derivative markets would you be supportive of a move to trade SPS rather than FRAs from 27 October 2020?

90% of respondents supported the move to trade LIBOR SPS rather than LIBOR FRAs from 27 October.


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Bank of England statement on European Securities and Markets Authority recognition decisions

The Bank of England welcomes the European Securities and Markets Authority’s (ESMA) recognition decisions with respect to central counterparties (CCPs) established in third countries. The decisions give the formal permission for UK CCPs to operate in the EU, continue to provide clearing services to their EU members, and EU banks to continue meet their obligations to UK CCPs.#

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Further updates to the TFSME to reflect changes to HMT’s Bounce Back Loans Scheme (BBLS) – Market Notice 24 September 2020

The objectives of the TFSME are to:

  • help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that businesses and households benefit from the MPC’s actions;
  • provide participants with a cost-effective source of funding to support additional lending to the real economy, providing insurance against adverse conditions in bank funding markets;
  • incentivise banks to provide credit to businesses and households to bridge through a period of economic disruption;  and
  • provide additional incentives for banks to support lending to SMEs, which typically bear the brunt of contractions in the supply of credit during periods of heightened risk aversion and economic downturns.

Consistent with the objectives of the scheme, the Bank announced on 2 May 2020 that TFSME participants would be able to extend the term of some of their TFSME funding to align with the term of loans made through the BBLS, which was set up to enable businesses to access finance more quickly during the coronavirus outbreak.

The Bank is today announcing further measures to ensure TFSME funding can continue to support lending to SMEs through the BBLS.  

In addition to the change announced in May, whereby banks will be able to extend the term of some TFSME funding from four to six years, the Bank will also in future allow TFSME participants to extend part of their borrowings again, out to a total term of up to ten years. 

Participants will be able to extend the term of TFSME loans by up to a further four years at the point at which existing six year TFSME loans mature. The amount of TFSME funding that can be extended will be capped at the amount of BBLS lending on TFSME participants’ balance sheets at that point in time.

TFSME documentation will be updated in due course to reflect this change and to provide further operational details. Other than as amended by this Market Notice, previous Market Notices related to the TFSME continue to apply.



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