Securities Regulation Daily U.K. and U.S. financial regulators assure participants derivative markets will endure in the wake of Brexit
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Monday, February 25, 2019

U.K. and U.S. financial regulators assure participants derivative markets will endure in the wake of Brexit

By Brad Rosen, J.D.

CFTC Chairman Giancarlo, along with his U.K. counterparts, announced various coordination measures to further continuity and avoid disruptions in anticipation of the U.K. departure from the E.U.

The CFTC, the Bank of England (BoE), and the U.K.’s Financial Conduct Authority (FCA) issued a joint statement addressing the continuity of derivatives trading and clearing following the Brexit effective date, which will occur on March 29, 2019, unless that date is delayed.

The joint statement provides that "Market participants can be assured of the continuity of derivatives trading and clearing activities between the UK and US, after the UK’s withdrawal from the EU," and further, "UK and US authorities are taking measures to ensure the UK’s withdrawal from the EU, in whatever form it takes, will not create regulatory uncertainty regarding derivatives market activity between the UK and US." The statement also asserts that the noted measures will help support financial stability and the sound functioning of financial markets. Moreover, they will give confidence to market participants about their ability to trade and manage risk through the derivatives markets.

Top leadership weighs in. CFTC Chairman J. Christopher Giancarlo said that the measures taken would "provide a bridge over Brexit through a durable regulatory framework upon which the thriving derivatives market between the United Kingdom and the United States may continue and endure."

Meanwhile, Bank of England Governor Mark Carney declared, "As host of the world’s largest and most sophisticated derivative markets, the US and UK have special responsibilities to keep their markets resilient, efficient and open. The measures we are announcing today will do that. Market participants can be confident that the clearing and trading of derivatives between the UK and US will maintain the high standards of today when the UK leaves the EU."

Andrew Bailey, Chief Executive of the FCA, stated, "Cooperation with our international partners has always been an important part of our work, and it will remain so after Brexit. This partnership will support our day-to-day supervisory activities and rule-making, as well as encouraging open markets and the development of rigorous global standards, by ensuring that wherever firms operate, they are regulated on a consistent basis."

The BoE, FCA, and CFTC reaffirmed their commitment to close cooperation and agreed to coordinate on the following measures in order to provide continuity in light of Brexit:

  • Continued supervisory cooperation. The BoE, FCA, and CFTC have in place information-sharing and cooperation arrangements to support the effective cross-border oversight of derivatives markets and participants and to promote market orderliness, confidence and financial stability. As part of these arrangements, the BoE and CFTC will be updating their Memorandum of Understanding (MoU) covering clearing activity which was originally signed in 2009. Similarly, the FCA and CFTC will be updating MoUs covering certain firms in the derivatives and alternative investment fund industry that were originally signed in 2013 and 2016.
  • Extending existing CFTC relief and comparability for the U.K. The CFTC intends that existing regulatory relief granted by the CFTC to E.U. firms, including U.K. firms, will be extended to U.K. firms at the point of the U.K.’s withdrawal from the E.U. To accomplish this, CFTC staff will issue new no-action letters to U.K. market participants confirming the continued application of existing no-action letters directed at E.U. market participants. These no-action letters will permit U.K. market participants to rely on longstanding CFTC staff relief related to a series of issues including, but not limited to, introducing broker registration, swap data reporting, and the trading and clearing of inter-affiliate swaps. Additionally, the CFTC has confirmed that U.K. CCPs currently registered with the Commission will be able to continue providing services in the U.S. on the same basis as they do now.
  • U.K. equivalence for the U.S. U.K. authorities have confirmed that U.S. trading venues, firms, and CCPs will be able to continue providing services in the U.K. The basis upon which these trading venues, firms, and CCPs currently provide services in the E.U. and to E.U. firms results from various decisions taken by the European Commission which declare the CFTC regulatory framework to be equivalent. U.K. firms will continue to be able to access these entities on the same basis as E.U. firms do today.

Additionally, the BoE has confirmed that, if the U.K. withdraws from the E.U. with no deal, U.S. CCPs will be able to continue providing services in the U.K. and to U.K. firms on the same basis as they do now using the U.K.’s "temporary recognition regime" for non-U.K. CCPs. To date, four CFTC-registered CCPs have notified the BoE of their intention to enter this regime which lasts for up to three years and can be extended if necessary.

MainStory: TopStory CFTCNews Derivatives ExchangesMarketRegulation FinancialIntermediaries InternationalNews Swaps

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