On November 9, 2018, the European Securities and Markets Authority issued a public statement urging customers of credit rating agencies and trade repositories to prepare for a "no deal" Brexit. The European Market Infrastructure Regulation requires derivatives subject to the reporting obligation to be reported to either a registered trade repository established in the EU or a recognized third-country trade repository. The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes if a rating is issued by: (i) an EU CRA registered with ESMA; or (ii) a third-country CRA under the endorsement regime or the equivalence/certification regime. Without the EU putting in place a temporary regime (as the U.K. is doing), U.K. CRAs and trade repositories will lose their EU registration when the U.K. leaves the EU on a "hard Brexit." ESMA reiterates that all market participants must ensure that they continue to comply with their obligations under EMIR, the CRA Regulation and other EU legislation and should monitor the Brexit-related public statements issued by CRAs and trade repositories.
ESMA's statement confirms that U.K. CRAs and trade repositories are implementing contingency plans in preparation for a "no deal" Brexit. However, further action is needed. ESMA is evaluating several applications submitted by both CRAs and trade repositories and states that it intends to start negotiations with the U.K. Financial Conduct Authority to ensure that the requisite arrangements for information exchange are in place by March 29, 2019.
In preparation for a "no deal" Brexit, the U.K. is establishing (i) a conversion regime for U.K. and third-country CRAs and trade repositories currently registered or certified by ESMA; and (ii) a temporary registration regime for newly established U.K. entities that are part of a group of CRAs or trade repositories with an existing ESMA registration before exit day.
The statement is available at: https://www.esma.europa.eu/press-news/esma-news/esma-asks-clients-creditrating-agencies-and-trade-repositories-prepare-no-deal, details of the U.K.'s Brexit preparations for CRAs and trade repositories are available at: https://finreg.shearman.com/UK-Plans-Transitional-Regime-for-CreditRatings-f and https://finreg.shearman.com/draft-uk-post-brexit-legislation-to-onshore-trade and details of the FCA's statement on the U.K. preparations are available at: https://finreg.shearman.com/uk-regulatorprovides-information-on-brexit-proce.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.