BoE outlines new ‘tiered’ CCP supervision framework

Non-UK CCPs will be labelled Tier 1 and Tier 2 following ‘reliance assessment’
Bank of England and Stock Exchange
Rachael King

The Bank of England has published new proposals on a tiered supervision framework for non-UK central counterparties (CCPs).

Non-UK CCPs are operating under a temporary “recognition regime” following the UK’s exit from the European Union. However, when the regime expires, these CCPs will need to be recognised by the central bank under the UK’s “onshored” version of the European Market Infrastructure Regulation.

Under the BoE’s proposal, CCPs will be assessed to see if they pose a systemic risk to the UK’s financial sector. They will then be classified as either ‘Tier 1’ or ‘Tier 2’ CCPs; the former will remain under the purview of their home financial supervisors.

Those in Tier 1 will not have interoperability arrangements with UK-based CCPs, and they will have held less than £10 billion ($13.5 billion) of UK clearing member initial margin, and less than £1 billion of UK clearing member default fund contributions.

There will also be a number of Tier 1 firms that exceed these criteria but are domiciled in a jurisdiction where co-operation and information sharing with the home regulator is deemed to be sufficient that they will not pose a risk, the BoE says.

Firms that exceed the BoE’s criteria, and where domestic regulators are unable to meet the BoE’s expectations, will be classified as Tier 2. These institutions will need to meet “specific UK standards” and will be subject to supervision by the BoE. 

The BoE plans to implement the policy in July 2022, following consultation with the market. The deadline for feedback is February 25.

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