REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Exemption for the Central Bank of The United Kingdom ('Bank of England') under the Markets in Financial Instruments Regulation (MiFIR)
Date: 2019-01-30
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: European System of Central Banks, United Kingdom, central bank, financial instrument, financial legislation, financial supervision, financial transaction, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 30.1.2019  COM(2019) 69 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 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)1  and  the  Directive 
on  Markets  in  Financial  Instruments  (MiFID  II)2  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")3. 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. 

1 Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in 
financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84). 
2 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial 
instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014). 
3 https://www.ceps.eu/publications/study-exemptions-third-country-central-banks-and-debt-management-offices-
under-mifir 

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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  report4  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:  

4 COM(2017) 298 final 

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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 

b.  The potential impact of the regulatory disclosure requirements in the Union may have on 
third country central bank transactions. In this context, the volume of transactions that the 
central  bank  executed  with  EU  counterparties  or  in  EU-listed  financial  instruments  is 
assessed.  

For  the  purposes  of  the  assessment,  the  fulfilment  of  these  two  criteria  was  considered 
essential since they capture the factors set out in Article 1(9) MiFIR. In this regard, "market 
transparency"  relates  to  transaction-specific  transparency  relating  to  individual  securities, 
while  the  "operational  transparency"  refers  to  broader  transparency  rules  that  govern  the 
operations  of  a  central  bank.  Therefore,  considering  the  MiFIR  objectives  and  scope,  an 
analysis  of  the  regulatory  requirements  relating  to  market  transparency  for  transactions  and 
transparency  of  the  operational  framework  was  considered  necessary  in  order  to  assess  the 
appropriateness  of  granting  an  exemption  to  third  country  central  banks  in  accordance  with 
Article 1(9)(a) MIFIR. Furthermore, the transaction volume between the central bank of the 
relevant third country and the EU is of importance as it is an indicator of the potential impact 
that regulatory disclosure requirements in the Union may have on third-country central bank 
transactions in accordance with Article 1(9)(b) MIFIR.  

Additionally, taking into account the requirements and objectives under MiFIR, the following 
criteria have also been considered:  

(i) 

the existence of a notification procedure whereby a third-country central  bank notifies 
its EU counterparty that a transaction is exempt;  

(ii)  

the ability of the third-country central bank to distinguish between transactions for the 
key  policy  purposes  identified  by  MiFIR  and  transactions  executed  only  for  ‘pure’ 
investment purposes; and  

(iii)   the  existence  of  a  similar  exemption  available  to  third-country  central  banks  in  the 

jurisdiction under review. 

The  above  additional  criteria  were  assessed  taking  into  account  the  requirements  and 
objectives  of  MiFIR.  In  particular,  the  assessment  considered  whether  the  third-country 
central  bank  had  a  procedure  in  place  to  notify  its  EU  counterparty  that  a  transaction  is 
exempt.  Under  MiFIR,  exemptions  under  Article  1(6)  MIFIR  cannot  be  granted  to  central 
banks when they execute operations for pure investment purposes. Therefore, the assessment 
considered whether third-country central banks can distinguish between transactions executed 
for  regulatory  and  investment  purposes.  Finally,  in  light  of  the  market  impact  of  disclosure 
requirements  and  its  potential  repercussion  on  the  effectiveness  of  monetary  policies,  the 
availability of a statutory exemption for central banks trading on third-country trading venues 
is assessed. 

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For a detailed description of the criteria, please refer to the study by CEPS.  

Summary of the analysis for the Bank of England (BoE) 

The Commission has concluded that, the Bank of England has a legal framework in place that 
allows  for  a  sufficient  level  of  transparency5.  Furthermore,  the  trading  activity  in  the  EU 
originating from the United Kingdom is substantial enough to justify granting an exemption 
from pre- and post-trade transparency requirements to the BoE.  

Below  is  a  short  summary  of  the  analysis  for  the  BoE  in  relation  to  the  above-mentioned 
criteria. 

Key criteria 

In terms of operational transparency, the BoE provides information about items in its balance 
sheet, announces its daily open market operations and it provides aggregate information on its 
transactions after these transactions take place, by means of electronic news services6.  

The European Commission has received data on trading activity of the BoE on EU financial 
markets and with EU counterparties. The trading volumes of the BoE with EU counterparties 
are high.  

Additional criteria 

An exemption from transparency requirements is available for foreign central banks trading in 
the United Kingdom. 

The BoE can distinguish between transactions for policy purposes and transactions for other 
purposes (especially “investment” purposes), which have a marginal role. 

Finally, there is a notification procedure in place to inform EU counterparties that transactions 
are not subject to transparency requirements. 

Overview of the criteria 

Key criteria 

Market transparency 

Operational transparency 

High 

High 

5 The purpose of this report is not to assess whether the above jurisdiction has trade transparency rules which can 
be deemed equivalent to those applicable under MIFIR. The conclusions in this report are without prejudice to 
any such assessment.  
6  Data  in  Official  Rates  and  Ranges  by  Maintenance  Period  and  Sterling  Monetary  Framework  assets  and 
liabilities  by  Maintenance  Period  are  available  monthly  from  June  2006.  Daily  data  in  Daily  Flows  -  Open 
Market  Operations  by  Maintenance  Period  are  available  from  May  2006.  Data  in  Bank  of  England  Asset 
Purchase Facility available weekly as at close of business on a Thursday from February 2009 to 16 September 
2016,  and  as  at  close  of  business  on  a  Wednesday  from  22  September  2016.  Data  in  Bank  of  England  Asset 
Purchase Facility - Term Funding Scheme are available from September 2016. Publication of data will usually 
occur on the Monday following an MPC decision on the Interactive Database, and on the 21st working day of 
each calendar month. Bank of England Asset Purchase Facility and Bank of England Asset Purchase Facility  - 
Term  Funding  Scheme  are  updated  weekly.  Data  in  Bank  of  England  Discount  Window  Facility  lending  are 
published quarterly. The data available are not seasonally adjusted. 

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Necessity 

Distinction transaction purpose 

Notification procedure 

Other criteria 

Foreign CBs exemption 

Yes 

Yes 

Yes 

[Yes] 

Execution type 

Bilateral (50-100%) Venues (10-50%) 

Exemption 

Yes 

4.  CONCLUSIONS 

On the basis of the information obtained, the Commission concludes 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 Bank of England. 

This conclusion is without prejudice to possible changes in the future, having regard to new 
evidence  submitted  by  the  Bank  of  England,  changes  of  legislation  in  the  UK  or  changed 
factual circumstances. These events may trigger the need for a review of the list of exempted 
third-country central banks. 

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