The Bank of England (BoE) is proposing that in “severe circumstances”, it would temporarily cease discretionary payments to CCP shareholders. The authority for the bank to do so has been recently conferred by the Financial Services and Markets Act 2023, and is a strategy for ensuring the continuity of critical clearing services in stress events.
The type of discretionary payments affected include dividend payments, share buybacks, as well as equity and variable renumeration. The aim is to limit the risks to public funds should a CCP enter into financial difficulties and in order to ensure financial stability. According to the Financial Services and Markets Act, the temporary restriction or prohibition of these payments can last up to five years.
In its consultation paper for the proposal, the BoE is seeking input on the conditions that should be met before discretionary payments could be ceased, as well as the approach that should be taken for cessation. The cessation will not affect third-country CCPs offering services in the UK.
