The Bank of England (BoE) has released its responses to feedback it received in a consultation paper on CCP resolution. The paper, published in July 2024, described the bank’s proposed approach to addressing impediments to resolvability among CCPs. Simultaneously, the bank has issued a statement of policy (SoP) detailing its statutory framework based on the feedback received in the consultation paper.
As the UK’s resolution authority for CCPs, the BoE has the responsibility of ensuring that CCPs are “resolvable”. The bank defines resolvable as being “feasible and credible to place a CCP into resolution without excessive disruption to the financial system, interruption to the provision of critical economic functions, or exposing public funds to losses”. The BoE’s power only applies to UK-based CCPs.
Removing impediments
The SoP “sets out how the bank expects to use its power to direct a CCP to address impediments to resolvability”. Where an impediment has been identified, the bank will assess “whether it would be feasible and credible to place a CCP into resolution and to implement the stabilisation options that would be effective to achieve the special resolution objectives”. The assessment should “consider all relevant matters”, such as the feasibility of using resolution tools and whether statutory stabilisation options can be effectively implemented.
Action plan
The CCP “may be required to prepare a plan showing how it will achieve the measures required by the Bank”, usually with a one month deadline. In determining the remedial measures to be ultimately taken by the CCP, the bank will take into account factors including the threat to financial stability posed by the impediments, the likely effect of the remedial measures on the CCP, the market for financial services within the UK, and the financial stability of the UK.
