EU to recognise LCH, ICE Clear Europe and LME Clear as third country CCPs

Three UK clearing houses will be recognised as third country CCPs under EMIR while the European Commission’s temporary equivalence decision is in place.

UK-based central clearing counterparties (CCPs) LCH, ICE Clear Europe and LME Clear are set to be recognised as third country CCPs in Europe once the Brexit transition period ends, the EU markets watchdog has confirmed.

The move means the clearing houses will be able to continue providing clearing services to clients in the European Union from 1 January 2021, while the European Commission’s recent equivalence decision is in force for 18 months until 30 June 2022.

A statement from the European Securities and Markets Authority (ESMA) said the 18 months provided by the time-limited decision will allow it to examine whether the third country CCPs are of substantial systematic importance and should be recognised to provide certain clearing services. 

ESMA also conducted a tiering and recognition assessment under EMIR in Europe, with LCH and ICE Clear to be recognised as tier two CCPs and LME Clear as a tier one CCP.

“Today’s decision by ESMA on the recognition of UK CCPs, combined with the European Commission’s adoption of time-limited equivalence, ensures financial stability, operational continuity and market access for customers,” the Futures Industry Association (FIA) president and CEO, Walt Lukken, commented on the development.

“During these uncertain times, it is imperative that businesses have access to clearinghouses and the risk mitigating services they provide. FIA thanks the leadership shown by European Commission executive vice-president Valdis Dombrovskis and ESMA chairman Steven Maijoor in making these important determinations.”

UK clearing houses were granted temporary equivalence earlier this month from January 2021 for 18 months to ensure market participants have enough time to reduce their exposure to CCPs in the UK.

ESMA added that the adoption of the equivalence decision is the first of several conditions that must be met for recognising a third country CCP under EMIR, including establishing cooperation agreements with national authorities. Therefore, a memorandum of understanding has now been formed between ESMA and the Bank of England as outlined in the equivalence decision.