Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 — House of Lords, 2018-11-28
Topic: Domestic Commerce
Michael Bates (Conservative, Centre-right): My Lords, these are two out of around 60 financial services SIs being laid by the Treasury under the EU withdrawal Act. They form part of the preparations being undertaken to ensure, in the event that no deal has been agreed when we leave the European Union in March 2019, that a functioning legislative and regulatory environment will continue to be in place for the financial services sector. They deliver on a commitment made last December, when the Treasury announced that it would provide functions and powers to the Financial Conduct Authority in relation to trade repositories, and to the Bank of England in relation to non-UK central securities depositories, to enable them to manage in an orderly manner any cliff-edge risks arising from a no-deal scenario Trade repositories and central securities depositories provide services in the UK under EU regulation. Should the UK leave the EU without a deal or an implementation period, trade repositories and central securities depositories would be unable to provide services to UK firms until they had the appropriate permissions under the UK’s domestic regimes, given that the UK would be outside the single market for financial services. The SIs seek to ensure that there will continue to be a functioning regulatory regime and mitigate any disruption in the provision of services in that scenario First, I will discuss the trade repositories SI. Trade repositories collect and maintain records centrally on derivative transactions. Derivatives are financial instruments that can be used to hedge against risks such as interest rate fluctuations or asset price volatility The European Markets Infrastructure Regulation, known as EMIR, requires all information on European derivative transactions to be reported to trade repositories registered or recognised by the European Securities and Markets Authority. If trade repositories are unable to provide services to UK firms post exit, those firms would be unable to fulfil their reporting requirements under the UK’s regime and the UK regulators would lose access to valuable data used to monitor the UK market for financial stability risks The SI therefore introduces a number of measures to mitigate against that risk and ensure a smooth continuation of services from trade repositories to UK firms. First, it establishes a UK framework for the registration of UK trade repositories, while maintaining the same regulatory criteria for new UK trade repository applicants. To do that, ESMA functions relating to registration of trade repositories will be transferred to the Financial Conduct Authority. That includes the mandate to make technical standards specifying the information to be provided by trade repository applicants. The FCA is already familiar with the reporting requirements under EMIR, due to its role in supervising UK firms, which are subject to existing EU reporting obligations. That means that it is the most appropriate UK authority to take on that role Secondly, the SI provides powers to the FCA to consider applications ahead of exit day, so that a trade repository can provide services in the UK as soon as possible following exit. Thirdly, it establishes a "temporary registration" regime for eligible trade repositories that will allow them to continue to provide services to the UK by forming UK-based subsidiaries. That provides temporary registration for a period of three years to UK trade repositories that are part of a group containing an ESMA-registered trade repository, the purpose being to allow additional time for their application for permanent registration to be considered by the FCA and to ensure continuity of services to UK firms. To enter the temporary regime, an eligible trade repository must, ahead of exit day, submit an application to the FCA for registration and set up a new legal entity in the UK Finally, the SI creates a conversion regime whereby UK trade repositories, currently registered by ESMA, are deemed to be registered by the FCA from exit day. To enter the regime, a UK trade repository must notify the FCA of its intention to be registered ahead of exit day. The conversion regime therefore ensures smooth continuity of services from UK trade repositories to firms.