Nick Stafford | published on 17th July 2016
Brexit Blog: The future for CCPs & Clearing Members
With all political signals pointing towards an exit from the common market, including clear statements from Philip Hammond and Eurosceptic David Davis’ appointment to the fledgling ‘Brexit Ministry’ what could the implications be for CCPs and Clearing Members?
Clearing members may be faced with additional capital requirements as they would now fall under the ‘third-country’ classification and therefore no longer benefit from the preferential treatment given to EU member entities. This may make clearing in Europe more difficult and, specifically, more expensive. How long and easy the process for recognition as a ‘third-country’ entity will be, remains to be seen.
Assuming a ‘hard’ exit from the common market, UK based CCPs will also need to apply for recognition in order to be able to operate in the European Union. This is a process which can take quite some time (as in the case of US CCPs). LCH Ltd, the largest London based clearing house, does of course have a sister company LCH SA based in Paris, so could the impact be limited… assuming they remain within the same group, which is another question entirely.
A far greater issue for LCH is the likely relocation of clearing services for Euro denominated instruments. Many commentators see this as a forgone conclusion. The European Central Bank has been trying to move Euro denominated clearing activities within the EU for some time but faced challenges in the European Court of Justice. With this hurdle removed the position of the ECB is highly likely to win the day.
Spare a thought for UK & EU bureaucrats & regulators, the volumes of paperwork they will need to process will not be insignificant!