The Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Partial Property Transfers and Safeguarding of Protected Arrangements) Regulations 2023

Set-off and netting

13.—(1) An instrument to which this Part applies may not make write-down provision in respect of a protected liability (subject to paragraph (6)).

(2) In this regulation, a “protected liability” is a write-down liability which is not within paragraph (3), and meets the following conditions—

(a) condition 1 is that the liability is owed by the CCP to a person (“P”);

(b) condition 2 is that the liability is a liability which either P or the CCP is entitled to set-off or net under set-off arrangements, netting arrangements or title transfer collateral arrangements into which P has entered with the CCP (“the relevant arrangements”);

(c) condition 3 is that—

(i) where the liability relates to a derivative, financial contract or qualifying master agreement (see regulation 14 (meaning of “derivative”, “financial contract” and “qualifying master agreement”)), it has not been converted into a net debt, claim or obligation, whether in accordance with the relevant arrangements or through the making of a write-down provision or otherwise;

(ii) where the liability relates to any other type of contract, it has neither been converted nor treated as if it had been converted into a net debt, claim or obligation, whether in accordance with the relevant arrangements or through the making of write-down provision or otherwise.

(3) The following liabilities are not protected liabilities—

(a) liabilities in relation to an unsecured debt instrument which is a transferrable security issued by that CCP, and for these purposes a “debt instrument” is any instrument falling within article 77 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001(1) (instruments creating or acknowledging indebtedness);

(b) liabilities in relation to a capital instrument issued by that CCP;

(c) liabilities owed in relation to subordinated debt;

(d) unsecured liabilities in relation to any instrument or contract which—

(i) at the date on which it was issued or made, had a maturity period of 12 months or more; and

(ii) is not a derivative, financial contract or qualifying master agreement;

(e) unsecured liabilities owed to another member of the same group as the relevant CCP which are not owed in relation to derivatives, financial contracts or qualifying master agreements;

(f) liabilities which relate to a claim for damages or an award of damages or a claim under an indemnity.

(4) For the purposes of paragraph (2)—

(a) it does not matter whether—

(i) the arrangements which permit P or the CCP to set-off or net the liability also permit P or the CCP to set-off or net rights and liabilities with another person;

(ii) the right of P or the CCP to set-off or net is exercisable only on the occurrence of a particular event;

(b) a liability is treated as if it is converted into a net debt, claim or obligation if the amount due in relation to the liability is reduced by reference to any sums which the debtor would be able to set off against the liability in the event that the debtor decided to exercise set-off or netting rights.

(5) For the purposes of paragraph (3), undertakings are in the same group if they are group undertakings in respect of each other, and “group undertaking” has the meaning given in section 1161(5) of the Companies Act 2006(2).

(6) Paragraph (1) does not prevent write-down provision from being made in order to convert, or in connection with converting, the protected liability into—

(a) the net debt, claim or obligation that would be due under the set-off arrangements, netting arrangements or title transfer collateral arrangements at the time the write-down provision providing for this is made; or

(b) an estimate of that net debt, claim or obligation.

(1)

S.I. 2001/544. Article 77 was amended by S.I. 2010/86 and 2011/133.

(2)

There are amendments to section 1165 which are not relevant.