The UK Government Treasury proposed draft statutory instruments ("SIs") to ensure that, in the event of a "no-deal" Brexit, the current legal framework for the derivatives market and ring-fencing regime remains effective.
One SI would transfer the current functions and responsibilities of the European Securities and Markets Authority for OTC derivatives, central counterparties ("CCPs") and trade repositories ("TRs") to UK authorities. The proposal would, among other things:
- transfer the authority to set clearing obligations to the Bank of England;
- give the power for setting the timing for the phase-in of any new clearing obligations to the Bank of England;
- reassign the authority to set the timing of entry of changes to the clearing obligation for other counterparties to the Financial Conduct Authority ("FCA");
- shift authority over margin obligations of OTC derivative contracts to the Prudential Regulation Authority and FCA;
- require UK firms and CCPs entering into derivatives to report the details of the trades to a TR that has been recognized or registered by the FCA; and
- allow the FCA to suspend a UK firm or CCP reporting obligation for up to one year if there is no registered or recognized UK TR available.
The proposal would amend or delete various processes or requirements governing cooperation between UK and European Economic Area regulators, including those regarding (i) TR supervision, (ii) EU CCPs supervised by colleges and (iii) information sharing.
The other SI relates to banks and banking groups that carry more than £25 billion in core deposits and separate retail banking from investment banking. The aim is to ensure that the ring-fencing requirements will continue operating after Brexit.
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