On 16 October 2023, HM Treasury published the minutes of a meeting of the Central Counterparty (CCP) Resolution Liaison Panel, held in June 2023.
The Panel was brought together for the meeting on an extraordinary basis before the Financial Services and Markets Act 2023 (FSMA 2023) received Royal Assent, to allow for industry views to be shared on plans to implement the expanded resolution regime for CCPs at an earlier stage. Panel members were able to submit written feedback following the meeting, and that feedback has been captured in the minutes where relevant.
The timings for implementing the expanded CCP resolution regime were discussed at the meeting, with HM Treasury explaining that:
- Certain regulation-making powers were to commence 2 months after Royal Assent of FSMA 2023, to enable the laying of certain regulations ahead of fully operationalising the regime.
- HM Treasury’s aim (subject to the usual Government and Parliamentary processes) is to bring the four statutory instruments (SIs) discussed at the meeting into force by the end of 2023, allowing the expanded regime to be fully operationalised at that point. Two of those SIs will be subject to the negative procedure, while the other two will be subject to the affirmative procedure.
- HM Treasury will then follow up with a second set of regulations covering compensation and valuation under the regime in 2024.
The four SIs to operationalise the regime, which were discussed at the meeting, include:
- Cash call: An SI on the Bank of England’s (BoE) power to impose a cash call on a CCP’s clearing members during a resolution. HM Treasury explained that the SI would place caps on the cash call power and outline the process where a clearing member fails to perform on its obligations under a statutory cash call. The BoE noted that the methodology used to set the cash call caps was intended to be transparent and reflect the size of risk posed by the CCP’s failure and the size of the CCP. HM Treasury also confirmed it does not envisage that the cash call will affect capital requirements.
- Deferment: A second SI which would outline the process by which the BoE will be able to defer or waive obligations imposed on a clearing member under a resolution. It was confirmed that the “no creditor worse off” (NCWO) safeguard is intended to apply wherever a loss is allocated under a resolution instrument, so would apply to deferred obligations to the extent they are enforced.
- Safeguarding: A third SI is intended to mirror Banking Act 2009 precedent and to safeguard certain protected arrangements from partial property transfers and write-downs performed under a resolution. HM Treasury confirmed this SI would not change the order of priority in insolvency.
- Consequential amendments: A draft SI setting out consequential amendments in relation to the expanded regime, the Resolution on Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023, was published on 16 October 2023.