Exemption for the Central Bank of The United Kingdom ('Bank of England') under the Markets in Financial Instruments Regulation (MiFIR)

1.INTRODUCTION

The Regulation on Markets in Financial Instruments (hereinafter MiFIR) and the Directive on Markets in Financial Instruments (MiFID II) were published in the Official Journal on 12 June 2014, entered into force on 2 July 2014 and have been applicable since 3 January 2018.

MiFID II/MiFIR introduce a market structure which aims to ensure that trading, wherever appropriate, takes place on regulated platforms and that trading is made transparent to ensure efficient and fair price formation.

In this framework, MiFIR grants an exemption from pre- and post-trade transparency requirements with regard to non-equity financial instruments in respect of a transaction where the counterparty is a member of the European System of Central Banks (ESCB) and where that transaction is entered into in performance of monetary, foreign exchange and financial stability policy which that member of the ESCB is legally empowered to pursue and where that member has given prior notification to its counterparty that the transaction is exempt. Moreover, MIFIR empowers the Commission to extend the scope of this exemption to third-country central banks where the prerequisite conditions are fulfilled.

For this purpose the European Commission commissioned an external study to the Centre for European Policy Studies (CEPS) and the University of Bologna on "Exemptions for third-country central banks and other entities under the Market Abuse Regulation (MAR) and the Markets in Financial Instrument Regulation (MiFIR)" (the "study"). The study is based on a survey and desk research. It analyses the pre- and post-trade transparency rules that apply when third-country central banks trade in non-equity financial instruments, as well as the extent to which these central banks trade these instruments in the Union.

2.THE REPORT'S LEGAL BASIS: MiFIR ARTICLE 1(9)

Article 1(6) of MiFIR contains an exemption from pre- and post-trade transparency rules for transactions where the counterparty is a member of the European System of Central Banks (ESCB) and where that transaction is entered into in performance of monetary, foreign exchange and financial stability policy which that member of the ESCB is legally empowered to pursue and where that member has given prior notification to its counterparty that the transaction is exempt.

In addition, Article 1(9) MiFIR empowers the Commission to: "[…] adopt delegated acts in accordance with Article 50 to extend the scope of paragraph 6 to other central banks.

To that end, the Commission shall, by 1 June 2015, submit a report to the European Parliament and to the Council assessing the treatment of transactions by third-country central banks which for the purposes of this paragraph includes the Bank for International Settlements. The report shall include an analysis of their statutory tasks and their trading volumes in the Union. The report shall:

(a) identify provisions applicable in the relevant third countries regarding the regulatory disclosure of central bank transactions, including transactions undertaken by members of the ESCB in those third countries, and

(b) assess the potential impact that regulatory disclosure requirements in the Union may have on third-country central bank transactions.

If the report concludes that the exemption provided for in paragraph 6 is necessary in respect of transactions where the counterparty is a third-country central bank carrying out monetary policy, foreign exchange and financial stability operations, the Commission shall provide that that exemption applies to that third-country central bank.”

In a Commission report adopted on 9 June 2017, the Commission concluded that it is appropriate to grant an exemption from MiFIR pre- and post-trade transparency requirements in accordance with Article 1(9) MIFIR to the third-country central banks of the following jurisdictions: Australia, Brazil, Canada, Hong Kong SAR, India, Japan, Mexico, Singapore, the Republic of Korea, Switzerland, Turkey and the United States – and the Bank for International Settlements. Delegated Regulation (EU) 2017/1799, adopted on 14 June 2017, granted an exemption from MiFIR pre- and post-trade transparency requirements in accordance with Article 1(9) MIFIR to the third-country central banks of the aforementioned countries.

In parallel, the Commission assesses the appropriateness of granting an exemption from MiFIR pre- and post-trade transparency requirements under Article 1(9) MiFIR to the People’s Bank of China. Member States are consulted in the Expert Group of the European Securities Committee on the draft report and draft Delegated Regulation.

The Bank of England was not considered in the above-mentioned report and delegated regulation due to its status as a central bank of a Member State of the EU. However, in light of the United Kingdom’s approaching change of status to a third country it is now appropriate to present to the European Parliament and to the Council a report pursuant to Article 1(9) of MiFIR analysing the appropriateness of extending the exemption from the scope of MiFIR to the Bank of England.

3.ANALYSIS OF THE SITUATION FOR THE BANK OF ENGLAND

Criteria used for the assessment

The mandate provided by article 1(9) MiFIR (analysis of the identified jurisdictions) is based on two key criteria both of which were crucial for the Commission's assessment:

a.Provisions applicable in the relevant third countries regarding the regulatory disclosure of central banks transactions, including transactions undertaken by a member of the ESCB in those third countries. This includes the market transparency regime applicable to central bank transactions ("market transparency") and/or the transparency of the operational framework of the central bank ("operational transparency"); and