The Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021

Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories U.K.

24.—(1) Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories(1) is amended as follows.

(2) In Article 2 (definitions)(2), after point (35) insert—

“(36) ‘PRA Rulebook’ means the rulebook published by the PRA containing rules made by that Authority under FSMA as that rulebook has effect on 1 January 2022.”.

(3) In Article 3 (intragroup transactions)(3)—

(a) in paragraph (3)—

(i) in point (b), after “Capital Requirements Regulation”, in both places it occurs, insert “or CRR rules”;

(ii) after point (b) insert—

“or

(c) belong to a group covered by rules made by the FCA under Part 9C of the FSMA (prudential regulation of FCA investment firms) or in relation to a group the parent undertaking of which has its head office in a third country, belong to a group subject to supervision by a third country competent authority verified as equivalent to Part 9C rules;”;

(b) at the end insert—

“4.   In this Article:

‘CRR rules’ has the meaning given in section 144A of the FSMA;

‘Part 9C rules’ has the meaning given in section 143F(1) of the FSMA.”.

(4) In Article 50a(1), for “Article 308 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms” substitute “Article 308 of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook”.

(5) For Article 50a(2) (calculation of KCCP) substitute—

“2.   A CCP shall calculate the hypothetical capital as follows:

where:

K_CCP = the hypothetical capital;

i = the index denoting the clearing member;

EAD_i = the exposure amount of the CCP to clearing member i, including the clearing member’s own transactions with the CCP, the client transactions guaranteed by the clearing member, and all values of collateral held by the CCP, including the clearing member’s pre-funded default fund contribution, against those transactions, relating to the valuation at the end of the regulatory reporting date before the margin called on the final margin call of that day is exchanged;

RW = a risk weight of 20%; and

capital ratio = 8%..”.

(6) For Article 50b (general rules for the calculation of K_CCP) substitute—

“Article 50b U.K. General rules for the calculation of K_CCP

For the purpose of calculating K_CCP referred to in Article 50a(2), the following provisions shall apply:

(a) CCPs shall calculate the value of the exposures they have to their clearing members as follows:

(i) for exposures arising from contracts and transactions listed in points (a) or (c) of Article 301(1) of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook, CCPs shall calculate the value in accordance with the method set out in Section 3 of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook by using a margin period of risk of 10 business days;

(ii) for exposures arising from contracts and transactions listed in point (b) of Article 301(1) of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook, CCPs shall calculate the value (EAD_i) in accordance with the following formula:

• EAD_i = max {EBRM_i – IM_i – DF_i; 0}

where:

EAD_{i =} the exposure value;

i = the index denoting the clearing member;

EBRM_{i =} the exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member;

IM_{i =} the initial margin posted with the CCP by clearing member i;

DF_i = the pre-funded default fund contribution of clearing member i.

• All values in this formula shall relate to the valuation at the end of the day before the margin called on the final margin call of that day is exchanged;

(iii)

for situations referred to in the third sentence of the second subparagraph of Article 301(1) of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook, CCPs shall calculate the value of the transactions referred to in the first sentence of that subparagraph in accordance with the formula set out in point (a)(ii) of this Article, and shall determine EBRM_i in accordance with Title V of Part Three of the Capital Requirements Regulation;

(b)

for institutions that fall under the scope of the Capital Requirements Regulation the netting sets are the same as those defined in point (4) of Article 272 of that Regulation;

(c)

a CCP that has exposures to one or more CCPs shall treat those exposures as if they were exposures to clearing members and include any margin or pre-funded contributions received from those CCPs in the calculation of K_CCP ;

(d)

a CCP that has in place a binding contractual arrangement with its clearing members that allows that CCP to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions shall consider that initial margin as pre-funded contributions for the purposes of the calculation in paragraph 1 and not as initial margin;

(e)

where collateral is held against an account containing more than one of the types of contracts and transactions referred to in Article 301(1) of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook, CCPs shall allocate the initial margin provided by their clearing members or clients, as applicable, in proportion to the EADs of the respective types of contracts and transactions calculated in accordance with point (a) of this paragraph, without taking into account initial margin in the calculation;

(f)

CCPs that have more than one default fund shall carry out the calculation for each default fund separately;

(g)

where a clearing member provides client clearing services, and the transactions and collateral of the clearing member’s clients are held in sub-accounts which are separate from those of the clearing member’s proprietary business, CCPs shall carry out the calculation of EAD_i for each sub-account separately and shall calculate the clearing member’s total EAD_i as the sum of the EADs of the clients’ sub-accounts and the EAD of the clearing member’s proprietary business sub-account;

(h)

for the purposes of point (f), where DF_i is not split between the clients’ sub-accounts and the clearing member’s proprietary business sub-accounts, CCPs shall allocate DF_i per sub-account according to the respective fraction the initial margin of that sub-account has in relation to the total initial margin posted by the clearing member or for the account of the clearing member;

(i)

CCPs shall not carry out the calculation in accordance with Article 50a(2) where the default fund covers cash transactions only.

For the purposes of point (a)(ii) of this Article, the CCP shall use the method specified in Article 223 of the Capital Requirements Regulation with supervisory volatility adjustments set out in Article 224 of that Regulation to calculate the exposure value.”.

(7) In Article 50c (reporting of information), in paragraph 1—

(a) in the opening words, for “Regulation (EU) No 575/2013” substitute “Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook”;

(b) omit points (d) and (e).

(8) In Article 50d (calculation of specific items to be reported by the CCP), omit point (c).

Commencement Information

I1 Reg. 24 in force at 1.1.2022, see reg. 1(3)

(1)

EUR 2012/648, as amended by S.I. 2018/1184, S.I. 2018/1318, S.I. 2019/335, S.I. 2019/1416 and S.I. 2020/646.

(2)

Points (32) to (35) were inserted by S.I. 2018/1184.

(3)

Article 3 was amended by S.I. 2019/335 and S.I. 2019/685.