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Securities and markets regulatory news, 28 June 2021

FIG Bulletin

28 June 2021

Recent UK and EU regulatory developments of interest to financial institutions and markets. Also check our supplementary Financial institutions general regulatory news of broader application in the Related Materials links.

UK CCPs: BoE discussion paper on supervisory stress test framework

The Bank of England (BoE) has published a discussion paper on supervisory stress testing of UK central counterparties (CCPs) and announced its first public CCP stress test, which will run over a nine-month period in 2021-22, beginning around the start of the fourth quarter of 2021. The three recognised UK CCPs (ICE Clear Europe Ltd (ICEU), LCH Ltd (LCH) and LME Clear Ltd (LMEC)) will participate. All of their clearing services will be in scope. This stress test will be exploratory in nature. The CCPs will not be tested against regulatory requirements and there will be no pass-fail thresholds. However, if deficiencies are identified, the BoE will take remedial action. The outcomes from the exercise will be published around the end of the second quarter of 2022.

The BoE intends to use CCP supervisory stress testing as a key mechanism through which to undertake assessments of the resilience of individual CCPs, as well as assessments of the broader resilience of the clearing network and its interactions with the rest of the financial system. CCP supervisory stress tests will also be used to promote transparency and help establish public confidence in the UK CCP system.

In the discussion paper, the BoE sets out a range of proposals and options for the design of the CCP supervisory stress-testing framework. Comments can be made on the discussion paper until 17 December 2021. The BoE will use responses received, in conjunction with the findings from the 2021-22 stress test, to inform further development of the CCP supervisory stress-testing framework.

Proposed Regulation on pilot regime for market infrastructures based on DLT: ECB opinion

An opinion of the European Central Bank (ECB) on a proposed Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) has been published in the Official Journal of the European Union. The Commission adopted the proposed Regulation in September 2021 as part of its Digital Finance Strategy.

The European Parliament and the Council of the EU wrote to the ECB asking it to produce the opinion in November 2020. The aim of the proposed Regulation is to enable investment firms, market operators and central securities depositories (CSDs) to operate market infrastructures based on DLT, either as a DLT multilateral trading facility (DLT MTF) or a DLT securities settlement system (DLT SSS).

The ECB generally welcomes the proposed Regulation. However, it raises a number of general concerns, as well as concerns relating to monetary policy, oversight and systemic issues, financial stability aspects, and prudential supervision. Where the ECB recommends that the proposed Regulation is amended, specific drafting proposals are set out in a separate technical working document, which can be found attached to the original version of the opinion.

CRAs: ESMA technical advice on supervisory fees

Following its January 2021 consultation, the European Securities and Markets Authority (ESMA) has published a final report setting out its technical advice to the European Commission on supervisory fees charged to credit rating agencies (CRAs). The technical advice has been sent to the European Commission and will feed into the upcoming review of the Fees Regulation.