On 16 September 2019, HM Treasury published a letter from John Glen, Economic Secretary to the Treasury to Sir William Cash, House of Commons European Committee Chair, providing an update on the current status of the proposal for an EU Regulation on the recovery and resolution of central counterparties (CCPs).

Mr Glen states that the Working Group’s meetings on this file were paused until the changes to the supervision framework of CCPs proposed in the EMIR Refit Regulation and EMIR 2.2 had been agreed. These proposals were agreed in March 2019, and consequently the Working Group resumed progress on the file in May 2019, with further meetings in June and July.

The letter also presents an overview of European Council discussions relating to the following issues:

  • No Creditor Worse off (NCWO) counterfactual: The Council has discussed including replacement costs in the NCWO counterfactual. This is the assessment of whether creditors would be worse off in resolution than in an insolvency. The UK position is to narrow the concept to account for only ‘direct’ replacement costs.
  • Recovery plans for CCPs that are part of a group: The UK argues that CCPs are self-standing entities and should not rely on group structures in a resolution scenario. However, where there are established critical interdependencies between a CCP and a wider group entity, it may be appropriate to consider the impacts of these, although a group level recovery plan should not be necessary.
  • Treatment of CCP equity in resolution: Agreement has not yet been reached in this area, although a Financial Markets Infrastructure cross-border crisis management group is in the process of preparing a consultation paper on the treatment of CCP equity in resolution. Further Financial Stability Board (FSB) guidance is anticipated in 2020.

The Presidency of the Council of the EU has indicated that it intends to reach a general approach in December 2019, with trilogues expected to commence in January 2020.