UK Extends Temporary Recognition Regime for Third Country Central Counterparties and Transitional Regime for Qualifying Central Counterparties

The Central Counterparties (Transitional Provision) (Extension and Amendment) Regulations 2023 were made on September 13, 2023 and will enter into force on November 1, 2023, extending the U.K.'s temporary recognition regime for third-country CCPs to December 31, 2025. The TRR allows third-country CCPs to continue offering clearing services in the U.K., pending full recognition or equivalence decisions being granted. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services") granted the Bank of England new rulemaking powers over CCPs and provides for the future framework for market access for overseas CCPs. The extended TRR will enable the current regime for overseas CCPs to continue while the U.K.'s new regime is developed, and ensures that certain overseas CCPs for whom recognition decisions have not yet been granted can continue to offer services in the U.K.

The CCP Regulations also extend the transitional regime for CCPs to be treated as "qualifying" CCPs under the U.K. Capital Requirements Regulation. Designation as a QCCP means U.K. firms subject to CRR with indirect exposures to a QCCP are not subject to higher capital requirements. Under the CCP Regulations, QCCPs will retain their status for an additional year from the date their recognition application was submitted (which means that for many QCCPs, the new transitional regime will expire on December 31, 2024). This will give U.K. regulators additional time to determine recognition and equivalence decisions and ensures there will be no rapid increase in capital requirements for U.K. firms that currently have exposures to QCCPs.

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