The Treasury has announced its intention to take equivalence decisions in respect of the European Economic Area (EEA) states across a number of financial services areas. These will come into effect at the end of the transition period.
The decisions cover various sectors and will provide certainty to firms and their clients and counterparties. The decisions where the FCA is the lead regulator are:
- EMIR (Article 13) – Intragroup transactions exemption
- EMIR (Article 2A) – Regulated markets
- Short Selling Regulation (SSR) (Article 17) – Market making exemption
- Credit Rating Agencies Regulation (CRAR) (Article 5) – Certification
- Benchmarks Regulation (BMR) (Article 30)
Firms should consult the Treasury’s publication[1] for the full list of decisions.
In some instances, the decisions will enable EEA firms to continue to access the UK market. It is important firms check the potential impact of these decisions on their business.
In some cases, firms will have to take action to benefit from the equivalence provisions. In other cases, including where the Treasury has already introduced a transitional regime to allow continued firm access after the transition period, firms might not need to take any action at this stage.
Equivalence provisions occur in several pieces of EU legislation and have been onshored into UK legislation. Equivalence consists of a determination that the regulatory or supervisory regime of another jurisdiction is recognised as being equivalent to the corresponding UK regime, and allows UK authorities to rely on supervised entities’ compliance with equivalent rules or supervision in that jurisdiction.
Below we summarise some of the decisions, and what this means for firms.
EMIR (Article 13) – Intragroup transactions exemption
What equivalence does
Under this decision, UK firms will be able to apply for the margining and/or clearing exemption for intragroup transactions where their intragroup counterparty is located in the EEA and, if granted, may benefit from the exemption on a non-time limited basis. However, UK firms will still need to be aware that their EEA intragroup counterparties may not be entitled to reciprocal exemptions under the EU EMIR requirements and should check the position on this.
Relevant transitional regimes
A separate transitional regime has already been provided under UK EMIR for intragroup exemptions from clearing and margin for UK to EEA and UK to third country intragroup transactions.
Following this equivalence decision, intragroup exemptions between UK firms and their EEA group entities will not need to make use of this transitional regime but will need to follow the process as detailed below.
The transitional regime will continue only for intragroup exemptions from clearing and margin between UK firms and their third country group entities where no equivalence has been determined.
What firms need to do now
To benefit from any new intragroup exemptions from clearing and/or margin, UK firms must submit an application (margin exemption) or a notification (clearing exemption) to the FCA. This should be based on the relevant conditions and timing set out in the UK EMIR and the processes prescribed by the FCA.
UK firms that have already been granted intragroup exemptions from margin and clearing with their EEA group entities will be required to reapply or renotify the FCA following this equivalence decision. However, to avoid unnecessary burden we intend to streamline this process.
Further details on the process will be published shortly.
Read more about EMIR notifications and exemptions[2].
EMIR (Article 2A) – Regulated markets
What equivalence does
Under this decision, UK firms will be able to consider EEA trading venues as regulated markets under Article 2A of UK EMIR. This confirms the classification of derivative transactions on these markets in relation to requirements under UK EMIR.
What firms need to do now
Firms do not need to take any action to benefit from this decision. The FCA will publish a list of all regulated markets under UK EMIR, including equivalent third country markets, before the end of the transition period.
Read more about UK EMIR[3].
Short Selling Regulation (SSR) (Article 17) – Market making exemption
What equivalence does
Under this decision, EEA firms who have not previously submitted a notification for a market maker exemption under UK SSR can now do so without needing to be a member of a UK trading venue and can, instead, submit a notification to us based on being a member of an EEA trading venue.
What firms need to do now
EEA firms wishing to benefit from this exemption need to have notified the FCA 30 days before they intend to do so. EEA firms who joined a UK trading venue and notified the FCA previously do not need to take any further action.
Read more about the market making exemption and the notification process[4], and the market making exemption from the end of the transition period.
Credit Rating Agencies Regulation (CRAR) (Article 5) – Certification
What equivalence does
Under this decision, EEA credit rating agencies registered with ESMA and whose credit rating activities are not of systemic importance to the financial stability or integrity of UK financial markets may apply for certification with the FCA. UK firms using ratings for regulatory purposes will be able to use credit ratings issued by an EEA CRA that is certified with the FCA and has no presence or affiliation in the UK.
Relevant transitional regimes
Firms can already make use of the separate transitional regimes provided by UK CRAR, notably the temporary registration regime available to EEA CRAs wishing to issue ratings in the UK after the end of the transition period.
What firms need to do now
EEA firms considering applying for certification must contact the FCA by emailing [email protected].
Read more about UK CRAR[5].
Benchmarks Regulation (BMR) (Article 30)
What equivalence does
Under this decision, EEA benchmark administrators will be able to access UK markets and UK supervised entities can continue to use their benchmarks on that basis.
Relevant transitional regimes
The Government is proposing to extend the current transitional period for all third country benchmarks set out in UK BMR from the end of 2022 to the end of 2025 in the recently published Financial Services Bill. Under the existing transitional arrangements, UK supervised entities are permitted to use all third country benchmarks until the end 2022 without further action from the EEA benchmark administrator. If the Bill is enacted, this period will extend to the end of 2025.
What firms need to do now
EEA benchmark administrators will need to notify the FCA if they wish to benefit from the decision. Further details on the process will be published in due course on our page about how to get authorised or registered as a benchmark administrator[6].
Read more about UK BMR[7].