UK and US agree cooperation for derivatives clearing and trading after Brexit

In a joint statement the Bank of England (BoE), the UK’s Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) said they would continue to cooperate and share information to support stability and “market orderliness”.

As part of the agreement, the BoE and CFTC are updating their memorandum of understanding (MoU) covering clearing activity which was originally signed in 2009, while the FCA and CFTC are updating MoUs covering certain firms in the derivatives and the alternative investment fund industry which were originally signed in 2013 and 2016.

UK firms will gain regulatory relief which is currently granted to EU firms in several areas. The CFTC will issue new no-action letters to UK market participants confirming the continued application of existing no-action letters directed at EU market participants. These letters will permit UK market participants to rely on longstanding CFTC staff relief related to a series of issues including introducing broker registration, swap data reporting, and the trading and clearing of inter-affiliate swaps.

The CFTC said it also intended to grant new substituted compliance and exemption orders to confirm that existing orders directed at the EU will be accompanied by new orders directed at the UK. Firms will be able to satisfy certain CFTC entity-level and transaction level requirements and margin requirements for uncleared swaps by complying with relevant UK laws, and to satisfy CFTC trade execution requirements by using eligible UK trading venues.

If need be, the CFTC will issue temporary, no-action relief to cover a transition period until these orders can be finalised.

UK central counterparties (CCPs) which are currently registered with the CFTC will be able to provide services in the US as they do now, and US trading venues, firms and CCPs will be able to continue their UK offerings. UK firms will also be able to access and use CFTC regulated trading venues to satisfy their regulatory obligations, including derivatives trading obligations.

HM Treasury, the BoE and the CFTC said they were cooperating closely on making equivalence and recognition decisions in relation to CCPs registered with the CFTC. US CCPs will be able to continue providing services in the UK even if the UK exits the EU with no deal, using the temporary recognition regime for non-UK CCPs.

CFTC chairman J. Christopher Giancarlo said the measures “provide a bridge over Brexit through a durable regulatory framework upon which the thriving derivatives market between the UK and the US may continue and endure”.

The statement follows an agreement between the UK and US governments in December which provides mutual recognition of each other’s regulatory frameworks for insurance.