Brexit Update: LCH Limited Article 25 Third Country Recognition by ESMA after 30 June 2022; LCH SA continues to benefit from the temporary deemed recognition from the Bank of England
|LCH Circular No 4202
|25 March 2022
|All LCH Clearing Members
We are writing to update you on LCH Group’s approach to cross-border access between the United Kingdom (“UK”) and the European Union (“EU”). As a systemically important institution, our priority remains to ensure the orderly functioning of markets, continuity of service to our customers and to support financial stability.
Since 1 January 2021, LCH Limited is a third country CCP under the EU framework (“EMIR”) and needs to have appropriate recognition in place to continue to provide clearing services to EU members and trading venues. This is based on (i) the UK being deemed equivalent by the European Commission and (ii) European Securities and Markets Authority (“ESMA”) recognising LCH Limited as a third country CCP.
On 21 September 2020, the European Commission adopted a decision, ensuring a time-limited equivalence for UK central counterparties (CCPs) until 30 June 2022. On 28 September 2020, ESMA determined LCH Limited to be of systemic relevance to the EU (Tier 2). As such, as of the EU withdrawal transition period, LCH Limited continues to be subject to the requirements of EMIR and is directly subject to ESMA supervision.
On 17 December 2021, ESMA published its assessment of systemic relevance for LCH Limited determining SwapClear clearing of euro and Polish zloty of substantial importance to the EU and recommended that steps are taken to mitigate risks and vulnerabilities linked to these services. However, it recommended that LCH Limited and all of its services should not be denied recognition in the EU.
On 8 February 2022, the European Commission published in the Official Journal an Implementing Decision (EU) 2022/174 determining that, for a limited period of time, the UK framework applicable to CCPs is equivalent to the EU framework. The equivalence decision extends the current equivalence until 30 June 2025. On this basis, on 25 March 2022, ESMA has announced the recognition of LCH Limited as a Tier 2 CCP under the EMIR 2.2 supervisory framework, in line with the temporary equivalence decision. As such LCH Limited will continue to be directly subject to the requirements of EMIR and to ESMA supervision.
Accordingly, we are pleased to confirm that there is once more no change to LCH Limited’s ability to provide clearing services for all products and services to all EU members and clients beyond 30 June 2022 and for at least an additional three years, until 30 June 2025.
We will continue to engage and cooperate with the relevant regulatory authorities in respect of the long-term recognition of LCH Limited on an ongoing basis under EMIR 2.2 as well as on ESMA proposed risk mitigation measures.
LCH SA continues to benefit from a temporary deemed recognition from the Bank of England. This deemed recognition will last for a maximum of three years after the end of the transition period, i.e. until 31 December 2023, and may be extended by HM Treasury in increments of twelve months. The Bank of England has recently consulted on the future framework for the Tiering and Comparable compliance Technical Standards, which would finalise UK’s regulatory framework applicable to both UK and non-UK CCPs and allow LCH SA to formally apply for recognition by the Bank of England.
LCH reserves its right to take any action it considers appropriate at any time should there be a material change in circumstances. Members should continue to make their own assessment of the risks, take such advice as they consider necessary.
We thank you for your continued support and look forward to continuing to partner with you. Please do not hesitate to contact your dedicated LCH relationship manager or the LCH Sales & Relationship Management team (LCHSales@lseg.com) should you have any questions.