Financial Services And Markets Citation, interpretation and commencement 1 1 These Regulations may be cited as the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (No. 2) Regulations 2013. 2 In these Regulations, the “ Recognition Requirements Regulations ” means the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001 . 3 These Regulations come into force— a on 1st February 2014 for the purposes of regulation 3 , insofar as that regulation inserts paragraphs 29B and 36 into the Schedule to the Recognition Requirements Regulations; b on 1st May 2014 for the purposes of regulation 3 , insofar as that regulation inserts paragraphs 23A and 29A into the Schedule to the Recognition Requirements Regulations; c for all other purposes on 26th August 2013. Amendments to the Companies Act 1989 2 1 The Companies Act 1989 is amended as follows. 2 In section 155 (market contracts) — a in subsection (2B)(c), after “subsection (2C)”, insert “or (2D)”; b after subsection (2C) insert— 2D A client trade is also excluded by this subsection from subsection (2B)(c) if— a the client trade was entered into by a client in the course of providing indirect clearing services to an indirect client; b the client defaults; and c the clearing member client contract corresponding to the client trade is not transferred within— i the period specified for this purpose in the default rules of the recognised central counterparty; or ii if no such period is specified in the default rules of the recognised central counterparty, a period of 14 days beginning with the day on which proceedings in respect of the client’s insolvency are begun. ; and c after subsection (3A) insert— 3B The reference in subsection (2D)(c)(ii) to the beginning of insolvency proceedings is to— a the presentation of a bankruptcy petition or a petition for sequestration of a client’s estate, or b the application for an administration order or the presentation of a winding-up petition or the passing of a resolution for voluntary winding up, or c the appointment of an administrative receiver. 3C In subsection (3B)(b) the reference to an application for an administration order is to be taken to include a reference to— a in a case where an administrator is appointed under paragraph 14 or 22 of Schedule B1 to the Insolvency Act 1986 (appointment by floating charge holder, company or directors) following filing with the court of a copy of a notice of intention to appoint under that paragraph, the filing of the copy of the notice, and b in a case where an administrator is appointed under either of those paragraphs without a copy of a notice of intention to appoint having been filed with the court, the appointment of the administrator. . 3 In section 155A (qualifying collateral arrangements and qualifying property transfers), in subsection (4)— a after paragraph (a), insert— aa payments of money by a clearing member to indirect clients in accordance with Article 4(5) of the EMIR Level 2 Regulation; ; and b after paragraph (b), insert— c transfers of property to the extent that they— i are made by a clearing member to a non-defaulting client or another clearing member instead of, or in place of, a defaulting client; ii represent the termination or close out value of a client trade which is transferred from a defaulting client to another clearing member or a non-defaulting client; and iii do not exceed the termination or close out value of the clearing member client contract corresponding to that client trade, as determined in accordance with the default rules of the recognised central counterparty. . 4 In section 158(1)(d) (modifications of the law of insolvency)— a after “by the clearing member”, insert “or client”; and b in the phrase “action taken to transfer the client trades”, omit “the”. 5 In section 159 (proceedings of exchange or clearing house take precedence over insolvency procedures)— a in subsection (1), paragraph (f)— i after “by the clearing member”, insert “or client”; ii for “the client trade”, substitute “a client trade”; b in subsection (2), paragraph (d)— i after “by the clearing member”, insert “or client”; and ii for “the client trade”, substitute “a client trade”. 6 In section 166 (powers to give directions), in subsection (9), paragraph (b), after “recognised clearing house”, insert “or a defaulting clearing member”. 7 In section 167 (application to determine whether default proceedings to be taken), in subsection (1)— a at the end of paragraph (a), omit “or”; b at the end of paragraph (b), insert— , or c a client which is providing indirect clearing services to an indirect client. ; and c in the last sentence, for “or clearing house”, substitute “clearing house or client”. 8 In section 170A ( EEA central counterparties and third country central counterparties)— a in subsection (1), at the end of paragraph (g), insert— , and h “ UK client” means a client— i which offers indirect clearing services, and ii to which the law of a part of the United Kingdom will apply for the purposes of an insolvent re-organisation or winding up. ; b in subsection (2), after “a UK clearing member”, insert “or a UK client”. 9 In section 182A (recognised central counterparties: disapplication of provisions on mutual credit and set-off), after subsection (1), insert— 2 Nothing in the law of insolvency shall enable the setting off against each other of— a positions and assets recorded in an account at a clearing member and held for the account of an indirect client or a group of indirect clients in accordance with Articles 4(2) and (3) of the EMIR Level 2 Regulation; and b positions and assets recorded in any other account at the clearing member. . 10 In section 188 (meaning of “default rules” and related expressions)— a in subsection (1), omit from “and in the case of a recognised central counterparty” to the end of the subsection; b after subsection (1), insert— 1A In the case of a recognised central counterparty, “default rules” includes— a the default procedures referred to in Article 48 of the EMIR Level 1 Regulation; and b any rules of the recognised central counterparty which provide for the taking of action in accordance with a request or instruction from a clearing member under the default procedures referred to in Article 4(4) of the EMIR Level 2 Regulation in respect of assets or positions held by the recognised central counterparty for the account of an indirect client or group of indirect clients. ; c after subsection (2), insert— 2A For the purposes of subsection (2), where a recognised central counterparty takes action under the rules referred to in subsection (1A)(b), the action is to be treated as taken in respect of the client providing the indirect clearing services. . 11 After section 189, insert— Meaning of “transfer” 189A 1 In this Part, a reference to a transfer of a clearing member client contract, a client trade or a qualifying collateral arrangement shall be interpreted in accordance with this section. 2 A transfer of a clearing member client contract or client trade includes— a an assignment; b a novation; and c terminating or closing out the clearing member client contract or client trade and establishing an equivalent position between different parties. 3 Where a clearing member client contract is recorded in the accounts of a recognised central counterparty as a position held for the account of an indirect client or group of indirect clients, the clearing member client contract is to be treated as having been transferred if the position is transferred to a different account at the recognised central counterparty. 4 A reference to a transfer of a qualifying collateral arrangement includes an assignment or a novation. . 12 In section 190 (minor definitions)— a at the appropriate place, insert— “indirect clearing services” has the same meaning as in the EMIR Level 2 Regulation; ; and b omit subsection (3A). 13 In the table in section 191 (index of defined expressions), at the appropriate places, insert the following rows— indirect clearing services Section 190(1) transfer Section 189A Amendments to the Recognition Requirements Regulations 3 1 The Recognition Requirements Regulations are amended as follows. 2 In regulation 3(1) (interpretation), in the definition of “defaulter” and “default”, for “section 188(2)” substitute “sections 188(2) and (2A)”. 3 In Part 3 of the Schedule, after paragraph 23 (complaints), insert— Recovery Plans 23A The clearing house must maintain a plan that sets out the steps that it will take in order to maintain the continuity of its exempt activities in the event that such continuity is threatened. . 4 In Part 5 of the Schedule, after paragraph 29 (requirements of the EMIR regulation), insert— Loss allocation 29A The central counterparty must maintain effective arrangements (which may include rules) for ensuring that losses that— a arise otherwise than as a result of clearing member default; and b threaten the central counterparty’s solvency; are allocated with a view to ensuring that the central counterparty can continue to provide the services and carry on the activities specified in its recognition order. Recovery plans 29B The central counterparty must maintain a plan that sets out the steps that it will take in order to maintain the continuity of the services that it provides and the activities that it carries on that are specified in its recognition order in the event that such continuity is threatened. . 5 In Part 6 of the Schedule, after paragraph 35 (liquidation of accounts), insert— Loss allocation 36 The default rules must contain provision ensuring that losses that— a arise as a result of clearing member default; b remain after the resources to which the central counterparty has access pursuant to Article 45 of the EMIR Level 1 Regulation have been exhausted; and c threaten the central counterparty’s solvency; are allocated with a view to ensuring that the central counterparty can continue to provide the services and carry on the activities specified in its recognition order. . Amendments to the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 4 1 The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 are amended as follows. 2 In regulation 7 (power of the FCA to require information), in paragraph (1)— a omit “or” after sub-paragraph (a); b after sub-paragraph (b) insert— ; or c an entity referred to in Article 4(1)(a)(v) of the EMIR regulation which is not an authorised person. . 3 In regulation 8 (applications and notifications to FCA)— a for the heading substitute “Applications, notifications and reports to FCA”; b after paragraph (1) insert— 1A Paragraphs (2), (6) and (8) apply where a financial counterparty is required to make a report under Article 12(4) or 15(2) of Commission Delegated Regulation ( EU ) 149/2013 of 19 December 2012 supplementing the EMIR regulation . ; c in paragraph (2), for “or notification” substitute “, notification or report”; d in paragraph (6)— i for “or notifications” substitute “, notifications or reports”; ii for “or notification” substitute “, notification or report”. 4 In regulation 9 (penalties)— a at the end of the heading insert “and statements”; b in paragraph (1) after “the FCA may” insert “publish a statement to that effect or”; c in paragraph (2) after “the FCA may” insert “publish a statement to that effect or”. 5 After regulation 15 (offences) insert— PART 6A Removal of directors of recognised central counterparties Removal of directors of recognised central counterparties 15A 1 If the Bank proposes to remove a member of the board of directors of a recognised central counterparty (“M”) under the second sub-paragraph of Article 31(1) of the EMIR regulation, it must give M and the recognised central counterparty concerned a notice. 2 A notice under paragraph (1) must inform the recipients that they may make representations to the Bank within such period as may be specified in the notice. 3 The Bank may extend the period allowed under a notice under paragraph (1) for making representations. 4 If, having considered any representations made in response to the notice under paragraph (1), the Bank decides to remove M from the board, it must without delay give M and the recognised central counterparty concerned a further notice. 5 If the Bank decides to remove M from the board, M or the recognised central counterparty concerned may refer the matter to the Tribunal. 6 A notice under paragraph (4) must inform the recipient of their right to refer the matter to the Tribunal, and give an indication of the procedure on such a reference. 7 In this regulation, “board of directors” includes, if there is no such board, the equivalent management body. . Amendment to the Financial Services and Markets Act 2000: markets in financial instruments directive 5 1 The Financial Services and Markets Act 2000 is amended as follows. 2 In section 301A (obligation to notify the FCA: acquisitions of control), after subsection (4) insert— 5 Nothing in this Chapter applies to an overseas investment exchange. . Transitory provision: recovery plans and loss allocation for recognised clearing houses applying for authorisation under EMIR 6 1 In this regulation— “EMIR” means Regulation (EU) 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories ; “relevant CCP ” means a body corporate or an unincorporated association which— is established in the United Kingdom; was a recognised clearing house immediately before 15th March 2013; and applies to the Bank of England in accordance with Article 17 of EMIR for an order granting authorisation for the purposes of that Article; “transition period” means the transition period for a relevant CCP, determined in accordance with regulations 52(1) and (2) of the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013. 2 Paragraphs (3) and (4) modify the application of Parts 3 and 4 of the Schedule to the Recognition Requirements Regulations to a relevant CCP during its transition period . 3 If the relevant CCP’s application in accordance with Article 17 of EMIR is not determined before 1st February 2014— a paragraph 23A of the Schedule to the Recognition Requirements Regulations applies to the relevant CCP from 1st February 2014; and b the Recognition Requirements Regulations apply to the relevant CCP with the following paragraph inserted into Part 4 of the Schedule, after paragraph 28— Loss Allocation 28A The default rules must contain provision ensuring that losses that— a arise as a result of the default of a member of the clearing house; and b threaten the clearing house’s solvency; are allocated with a view to ensuring that the clearing house can continue to provide its exempt activities. . 4 If the relevant CCP’s application in accordance with Article 17 of EMIR is not determined before 1st May 2014, the Recognition Requirements Regulations apply to the relevant CCP with— a the modifications mentioned in paragraph (3) ; and b the following paragraph inserted into Part 3 of the Schedule, after paragraph 23A— Loss Allocation 23B The clearing house must maintain effective arrangements (which may include rules) for ensuring that losses that— a arise otherwise than as a result of the default of a member of the clearing house; and b threaten the clearing house’s solvency; are allocated with a view to ensuring that the clearing house can continue to provide its exempt activities. . Mark Lancaster Robert Goodwill Two of the Lords Commissioners of Her Majesty’s Treasury 30th July 2013 Jo Swinson Parliamentary Under Secretary of State for Employment Relations and Consumer Affairs 24th July 2013