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Statement Published on Post-Brexit Continuity of Derivatives Trading and Clearing Measures

On February 25, the Bank of England (BoE), the UK Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission published a joint statement on measures intended to ensure the continuity of UK-US derivatives trading and clearing activities following the United Kingdom’s withdrawal from the European Union (Brexit).

The BoE, FCA and CFTC have agreed to coordinate with each other on the following measures by the end of March 2019 to provide continuity, where necessary:

  1. Continued supervisory cooperation—The BoE and CFTC will update their memorandum of understanding (MoU) to reflect the United Kingdom’s forthcoming recognition of CFTC-registered central counterparties (CCPs). The FCA and CFTC are also updating their MoUs covering certain firms in the derivatives and the alternative investment fund industry;
  1. Extension of existing CFTC relief and comparability for the United Kingdom—The CFTC intends to extend to UK firms regulatory relief that it already grants to EU (including UK) firms following Brexit. The CFTC staff will issue new no-action letters to UK market participants, confirming the continued application of existing no-action letters directed at other EU market participants. The CFTC also intends to grant new substituted compliance and exemption orders, confirming that existing orders benefitting EU market participants will be accompanied by new orders benefitting UK market participants. Additionally, the CFTC has confirmed that UK CCPs currently registered with the CFTC will be able to continue to provide services in the United States on the same basis as they do now;
  1. UK equivalence for the United States:
    • US trading venues, firms and CCPs will be able to continue to provide services in the United Kingdom. HM Treasury has confirmed that the European Commission’s decisions declaring the CFTC regulatory framework as equivalent in relation to risk mitigation requirements (including margin requirements for uncleared derivatives) and in relation to trading venues will continue to apply as a matter of UK law following Brexit.
    • HM Treasury, the BoE and the CFTC are also cooperating to make equivalence and recognition decisions relating to CFTC-registered CCPs, known as “derivatives clearing organizations” (DCOs). HM Treasury intends to find equivalent those clearing regimes that have already been found equivalent by the European Commission. HM Treasury and the BoE expect to announce decisions on the CFTC regime and CFTC-registered DCOs as a matter of priority. The joint statement also notes that, if there is a Brexit without a withdrawal agreement between the United Kingdom and the European Union (also referred to as a “no-deal Brexit”), US DCOs providing services in the United Kingdom and to UK firms will be able to continue to do so using the temporary recognition regime (TPR) for non-UK CCPs (see the July 27, 2018 edition of Corporate and Financial Weekly Digest). To date, four CFTC-registered DCOs have notified the BoE of their intention to enter the TPR.

The joint statement is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IX, Number 60

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About this Author

John Ahern, Financial Attorney, London, Katten Law Firm
Partner

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

+44 (0) 20 7770 5253
Carolyn H. Jackson, International Attorney, Katten Muchin law firm
Partner

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

+44 0 20 7776 7625
Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

+44 0 20 7776 7629
Neil Robson, private equity fund managers counselor, Katten Law Firm, London
Partner

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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