On 8 November 2021, the Bank of England (BoE) issued a Consultation Paper and a draft Statement of Policy on its approach to ‘tiering’ non-UK central counterparties (CCPs) based on the level of systemic risk they could pose to UK financial stability. The consultation closes on 25 February 2022.

Under the BoE’s tiering proposals:

  • Incoming CCPs will be assessed to establish if they might pose systemic risks to the UK.
  • They will be initially triaged against the following indicators:
    • whether the incoming CCP held at least £10bn of UK clearing member initial margin;
    • whether the incoming CCP held at least £1bn of UK clearing member default fund contributions; or
    • if the incoming CCP has an interoperability arrangement in place with a UK CCP.
  • The BoE will undertake a more detailed assessment of systemic importance for CCPs meeting one of the above indicators.
  • Incoming CCPs that are assessed as not systemically important will be classified as Tier 1 CCPs and will not progress to the next stage of the tiering assessment.
  • For CCPs that progress, the BoE will undertake an ‘informed reliance assessment’ to consider to what extent it is able to rely on home regulation and supervision of the incoming CCP, and the strength and reliability of cooperation and information sharing arrangements in place with the home authority. Where the CCP meets the BoE’s expectations it will be deemed Tier 1 and remain under home supervision provided the BoE can see on an ongoing basis that its home regulators are delivering the outcomes it needs to protect UK financial stability. Should these expectations not be met the CCP will be classified as Tier 2.
  • The BoE will have higher expectations of cooperation and trust from home authorities of CCPs where the UK proportion of total initial margin or default fund contributions is greater than 20%.
  • A tier 2 CCP will be required to meet specific UK standards under the onshored European Market Infrastructure Regulation (EMIR) and will be subject to direct supervision by the BoE. There may, however, be specific regulatory provisions for which these CCPs can be granted ‘comparable compliance’, and the UK can defer its supervision in these areas to the home authorities. This is further discussed in a Consultation Paper that the BoE has released. Under EMIR Article 25a(1), a Tier 2 incoming CCP (‘requesting CCP’) may submit a reasoned request that the BoE assesses whether in its compliance with the applicable home regime and taking into account the provisions of the regulations made under Article 25(6), a CCP may be deemed to satisfy compliance with certain EMIR requirements (Article 16, Title IV and Title V). The purpose of this Consultation Paper is to set out the BoE’s approach on how it would assess such a request. The consultation closes on 25 February 2022. The BoE will consult separately on its approach to charging fees to recognized incoming CCPs.

The BoE has also published a speech by Christina Segal-Knowles (Executive Director for Financial Markets Infrastructure) on ‘The UK’s approach to cross-border clearing’.