The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (No. 2) Regulations 2013

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations make further provision to implement certain Articles of—

(a) Regulation (EU) 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ No L 201, 27.7.2012, p1) (“the EMIR regulation”); and

(b) Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on indirect clearing arrangements, the clearing obligation, the public register, access to a trading venue, non-financial counterparties, and risk mitigation techniques for OTC derivatives contracts not cleared by a CCP (OJ No L 52, 23.2.2013, p11).

Certain articles of the EMIR regulation were implemented by the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 (S.I. 2013/504).

Regulation 2 amends the Companies Act 1989 to facilitate the segregation of indirect client accounts at a clearing member and the transfer of indirect client accounts on the failure of a client providing indirect clearing services. An indirect client is a client of a client of a clearing member.

Regulation 3 amends the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001 (S.I. 2001/995) (“the Recognition Requirements Regulations”). The Recognition Requirements Regulations set out the recognition requirements that investment exchanges and clearing houses must satisfy in order to be or to remain recognised by the appropriate regulator under section 290 of the Financial Services and Markets Act 2000 (c.8) (“the Act”). Recognised investment exchanges and recognised clearing houses have an exemption under section 285 of the Act, permitting them to carry on certain activities which would otherwise require authorisation under Part 4A of the Act.

Regulation 3 amends the Recognition Requirements Regulations so as to include the following new requirements: Clearing houses which provide clearing services without doing so as a central counterparty must maintain recovery plans specifying the steps they will take in order to maintain the continuity of their exempt activities if such continuity is threatened. Clearing houses which act as central counterparties must have in place effective arrangements for the allocation of losses arising for reasons other than member default; they must have in place plans for maintaining the provision of certain specified services when the continuity of service provision is threatened and must include in their default rules provision allocating losses that arise as a result of member default and which are not covered by the provision made in Article 45 of the EMIR regulation.

Regulation 4 amends the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 (S.I. 2013/504):

• to give the Financial Conduct Authority (“FCA”) power to obtain information from third country entities for which the FCA has supervisory responsibilities;

• to give the FCA power to direct the manner of making and content of reports to be made to the FCA under Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012;

• to give the FCA power to publish a statement of censure as an alternative to imposing a penalty for certain contraventions of the EMIR regulation or its implementing legislation;

• to require the Bank of England to give notice before removing a member of the board of directors of a recognised central counterparty under Article 31(1) of the EMIR regulation, and to give a person so removed and the recognised central counterparty concerned the right to refer the matter to the Upper Tribunal.

Regulation 5 alters the implementation of Article 38(3) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (OJ No L 145, 30.4.2004, p1). Article 38(3) is transposed by Chapter 1A of Part 18 of the Act (control over recognised investment exchange), and regulation 5 prevents Chapter 1A from applying to overseas investment exchanges.

Regulation 6 makes transitory provision for recognised clearing houses which are applying for authorisation under the EMIR regulation, where the applications have not been determined by 1st February 2014 or 1st May 2014.

A full impact assessment of the effect that these Regulations will have on the costs of business and the voluntary sector is available from, Her Majesty’s Treasury, 1 Horse Guards Road, London SW1A 2HQ or on http://www.hm-treasury.gov.uk/ and is published alongside the Regulations on http://www.legislation.gov.uk/.