This week the EU Commission announced (click here) another time-bound extension of its regulatory equivalence recognition under Article 25 of EMIR for UK central counterparties (CCPs) effective from 1 July 2025.
What is it about?
- Brexit resulted in UK-based CCPs falling outside of the EU, thereby automatically conferring them “third country” CCP status. To enable such UK CCPs to continue serving EU counterparties, formal recognition of equivalence under Article 25 of EU EMIR was required;
- The EU granted UK CCPs temporary equivalence status allowing EU counterparties to continue clearing on such CCPs, thereby avoiding potentially significant disruption to both financial and energy markets. The initial equivalence recognition was extended for three years in March 2022 (click here), and was set to expire on 30 June 2025. The latest extension runs from 1 July 2025 and remains valid for three years expiring on 30 June 2028;
- The EU claims that the extension will provide time for the implementation of EMIR 3 (which entered into force in December 2024) which “contains measures that will improve the attractiveness and competitiveness of EU clearing markets” – referencing the so-called Active Account Requirement (ARR) which requires EU firms to shift a proportion of their clearing to EU CCPs and maintain active clearing on such CCPs for certain instruments (none of which include commodity derivatives).
Neutral observers might question why temporary equivalence seems only to apply to UK CCPs when it is usually granted on an indefinite basis (a current list of equivalent Third Country CCPs may be found here). EU authorities maintain the narrative that reducing the EU’s over-reliance on systemically important UK CCPs will reduce risks impacting the EU’s financial stability. EMIR 3 compels EU firms to move a portion of their clearing to EU CCPs to this end for certain contracts.
The Bank of England duly acknowledged the EU Commission’s decision to extend its equivalence recognition here.
Article 25 equivalence under EU EMIR should not be conflated with Article 2a equivalence which remains elusive for UK markets. Without Article 2a equivalence, which the EU has thus far declined to recognise, Exchange Traded Derivatives (ETDs) traded on non-equivalent third country venues are treated as OTC Derivatives under EU EMIR for clearing threshold calculation purposes.
