On 7 October 2024, HM Treasury (HMT) issued a policy statement on the prudential treatment of overseas exchanges and the process by which they meet the definition of ‘recognised exchanges’ under the Capital Requirements Regulation (CRR).

Earlier consultation

The policy statement follows an earlier consultation in which HMT asked for views on changes that could be delivered, alongside the Basel 3.1 process, which would support the competitiveness of the prudential regime in the UK. One such miscellaneous change related to the prudential treatment of overseas exchanges and the process by which they are “recognised exchanges” under the CRR. HMT proposed linking the definition of ‘recognised exchanges’ in the CRR to the recognised overseas investment exchange (ROIE) regime. HMT also proposed that exchanges covered in the CRR definition of recognised exchanges are either those detailed in the Prudential Regulation Authority’s (PRA) technical standards (TS) which accompany the definition of recognised exchanges or are ROIEs per the Financial Conduct Authority’s regime.

Final policy

In light of feedback to the consultation HMT will add the link to the ROIE regime as proposed but rather than refer to the PRA’s TS, the CRR definition will refer to a set of conditions that will come to be specified in the PRA rulebook for the purpose of identifying recognised exchanges or assets traded on such exchanges. This means that the PRA will formulate new rules and it will consult on these as soon as is practicable. Until the PRA has made these rules, exchanges that fall within the definition will include those that are domestic UK investment exchanges and those on the ROIEs regime.

Eligible collateral

HMT states that by adding the link to the ROIE regime, firms will be able to recognise as eligible collateral, instruments traded on exchanges listed on the ROIE register automatically. This will provide some immediate benefits once the legislation is in place and while the PRA develops its rules. HMT encourages firms to engage with the PRA as it consults on its proposals.