The European Securities and Markets Authority (ESMA) has agreed Memoranda of Understanding (MoUs) with the Bank of England (BoE) for the recognition of central counterparties (CCPs) and of the central securities depository (CSD) established in the United Kingdom (UK), that would take effect should the UK leave the European Union (EU) without a withdrawal agreement, the no-deal Brexit scenario.
ESMA has previously communicated, in its public statements of 23 November and 19 December 2018, that its Board of Supervisors supports continued access to UK CCPs and to the UK CSD, in order to limit the risk of disruption in central clearing and to avoid any negative impact on the financial stability of the EU. It will also allow the UK CSD to continue to serve Irish securities, and to limit the risk of disruption to the Irish securities market.
ESMA aims to recognise UK CCPs and the UK CSD in a timely manner, where the four recognition conditions under Article 25 of EMIR, and the four recognition conditions under Article 25 of CSDR are met, respectively. The conclusion of MoUs between ESMA and the BOE satisfies the third recognition condition - establishment of cooperation arrangements - under both regulations.
The MoUs are a statement of intent to consult, cooperate and exchange information in connection with ESMA’s immediate access, on an on-going basis, to all information it requests regarding the CCPs and CSD. They are based on the standard template for the recognition of third country CCPs and amended to reflect the relevant conditions in the two equivalence decisions of the European Commission. The MOUs set out in detail the scope of cooperation and information-sharing arrangements between ESMA and the BOE.
The MoUs ensure that cooperation arrangements have been established regarding the CCPs and CSD and provide ESMA with adequate tools to monitor their ongoing compliance with the recognition conditions and to assess any material risk they pose, directly or indirectly, to the EU or any of its Member States, including to their financial stability.
ESMA aims to complete the next steps for the recognition of the UK CCPs and the UK CSD and to adopt the recognition decisions well ahead of Brexit date. The recognition decisions would take effect on the date following Brexit date, under a no-deal Brexit scenario.