U.K. Clearinghouses Win Reprieve While FSA Applies Global RulesJim Brunsden
U.K.-based clearinghouses have been provisionally declared by regulators as compliant with international rules, limiting the amount of capital banks must hold against their trades routed through them.
The U.K. Financial Services Authority said that all clearinghouses it regulates will be considered to be in compliance with the rules, which concern their ability to withstand crises, for a transitional period ending Dec. 31. The move buys time for regulators to oversee implementation of the measures.
The FSA is “working towards” applying the rules, the regulator said. The temporary clearance applies to “all recognized clearinghouses based in the U.K. and prudentially supervised” by the country’s authorities, it said. The transitional period can be extended.
Global regulators in the Basel Committee on Banking Supervision said last year that an amount equal to 2 percent of a bank’s trades through clearinghouses should be added to the risk-weighted assets used to determine the lender’s total capital requirements. The 2 percent rule will apply to trades with clearinghouses that meet international standards on robustness, the Basel group said.
Transactions that take place with clearers that don’t meet the standards would face tougher capital rules, linked to the platform’s credit rating. The measures are scheduled to take effect this month.
The standards for clearinghouses were drawn up by international regulators and published last year.
Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse AG’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.