European Union: European Supervisory Authority Public Statement On Post-Brexit Temporary Recognition For UK CCPs If No UK-EU Deal

On November 23, 2018, the European Securities and Markets Authority issued a public statement entitled "Managing risks of a no-deal Brexit in the area of central clearing." In the statement, ESMA confirms that its Board of Supervisors supports continued access to U.K. CCPs by EU market participants, to limit the risk of disruption in central clearing and to avoid negatively impacting EU financial market stability following the U.K.'s exit from the EU. This would appear likely to take effect pursuant to a temporary or interim equivalence and/or Qualifying CCP determination under the European Market Infrastructure Regulation and the Capital Requirements Directive for the U.K. and its CCPs, effective on Brexit.

ESMA welcomes the Communication issued by the European Commission on November 13, 2018, in which the Commission stated that it proposed to adopt a temporary and conditional equivalence decision to ensure that there will be no post-Brexit disruption to central clearing in the event of a "no-deal" scenario. ESMA confirms that it is engaging with the European Commission, and has already begun engaging with U.K. CCPs, to carry out preparatory work for a proposed recognition process that will ensure EU clearing members and trading venues can continue to access U.K. CCPs as of March 30, 2019. The recognition process will operate provided that the conditions in EMIR and conditions set out in the equivalence decision are all met.

It remains to be seen whether these helpful not non-legally binding statements of intent give sufficient certainty to enable U.K. clearing houses to determine not to exercise termination notices on EU clearing members prior to the end of the year (in light of applicable termination notice periods).

The ESMA public statement is available at: https://www.esma.europa.eu/sites/default/files/library/esma70- 151-1948_managing_risks_of_a_no-deal_brexit_in_the_area_of_central_clearing.pdf  and details of the Commission Communication are available at: https://finreg.shearman.com/european-commission-publishes-aspects-of-continge .

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