On 19 December 2018, the European Commission (Commission) issued a press release stating that it has started to implement its “no deal” Contingency Action Plan. This delivers on the Commission’s commitment to adopt all necessary “no deal” proposals by the end of the year, as outlined in its second preparedness Communication of 13 November 2018.
In relation to financial services the press release states that the Commission believes that only a limited number of contingency measures are necessary to safeguard financial stability in the EU27.
Therefore the Commission has adopted the following acts:
- a temporary and conditional equivalence decision for a fixed, limited period of 12 months to ensure that there will be no immediate disruption in the central clearing of derivatives;
- a temporary and conditional equivalence decision for a fixed, limited period of 24 months to ensure that there will be no disruption in central depositaries services for EU operators currently using UK operators;
- a Delegated Regulation supplementing EMIR as regards the date until which counterparties may continue to apply their risk-management procedures for certain OTC derivatives contracts not cleared by a CCP. Article 1 of the Delegated Regulation modifies Article 35 of Commission Delegated Regulation (EU) 2016/2251, allowing contracts with a counterparty established in the UK currently subject to risk-management procedures established prior to the relevant dates of application of that Regulation to be novated for a fixed period of 12 months as long as the sole purpose of the novation is to replace the counterparty established in the UK with a counterparty established in a Member State; and
- a Delegated Regulation that amends Commission Delegated Regulation (EU) 2015/2205, Commission Delegated Regulation (EU) 2016/592 and Commission Delegated Regulation (EU) 2016/1178 supplementing EMIR as regards the date at which the clearing obligation takes effect for certain types of contracts.
The equivalence decision for the central clearing of derivatives notes that the Commission concludes that the UK’s legal and supervisory arrangements for UK central counterparties (CCPs) on the day after the UK’s withdrawal from the EU is equivalent. However, the legal and supervisory arrangements are only to be considered equivalent where the requirements applicable to CCPs in the UK’s domestic law are maintained and continue to be effectively applied and enforced on an ongoing basis. In addition, effective exchange of information and coordination of supervisory activities between the European Securities and Markets Authority (ESMA) and the Bank of England is an essential condition for maintaining the determination of equivalence. The cooperation arrangements must ensure that ESMA has immediate access, on an ongoing basis, to all information requested by it.
The equivalence decision for central securities depositaries (CSDs) contains similar statements relating to the UK’s CSD regime.
The Commission calls on the European Parliament and the Council to ensure the adoption of the proposed legislative acts so that they are in force by 29 March 2019.
The Commission has also published Q&As on its proposals. Paras 21 to 24 deal with financial services.
The Bank of England has issued a statement on the equivalence decisions stating that is has already confirmed to ESMA that it will provide information in line with its current obligations and those set out in the equivalence decisions.
There has been no indication so far that the Commission would consider granting UK venues temporary equivalence in order to allow for uninterrupted compliance with EU MiFID II trading obligation requirements and to complement the temporary recognition regime being put in place by the UK Government for EU trading venues announced in August.
Jonathan Herbst commented: “The Commission proposals are a limited transitional focussed only on those areas where in their view there is a systemic need for such an approach. It bears none of the service continuity aspects of the UK interim permission regime. So two very different approaches at play here.”