Britain recognises CFTC oversight of US clearing houses in UK

The Bank of England said on Friday it would rely on a key U.S. regulator’s assessment of U.S.-based central counterparties (CCPs) which clear financial trades in Britain, in order to reduce duplication of work by supervisors.

The BoE signed an agreement with the U.S. Commodities and Futures Trading Commission (CFTC) in 2020 to share information, and Friday’s announcement will partially outsource the regulation of U.S. clearing houses which operate in Britain.

The central bank said it had deemed CFTC regulation to be of an equivalent standard to its own.

“The outcome of this assessment enables the Bank to place reliance on the CFTC’s supervision and oversight of incoming CCPs based in the US,” it said.

“The Bank and the CFTC have a longstanding relationship of cooperation and mutual understanding with respect to the supervision and oversight of cross-border CCPs, and recognise the importance of deference in regulation and supervision where appropriate,” the BoE added.

Clearing houses, also known as central counterparties, ensure a transaction is completed even if one side of a stock, bond or derivatives trade goes bust. They form a critical part of a market’s plumbing and include companies such as ICE (NYSE:ICE) and London Stock Exchange Group (LON:LSEG)’s LCH, which operate globally.

The BoE has had a thornier relationship with euro zone financial regulators, which have long resented London’s dominance of euro derivatives clearing activity, and ties have become more strained since Britain left the European Union.

Last year the EU widened access for U.S. exchanges and clearing houses to investors in the bloc, a move that contrasts with Brussels’ intention to shut off clearing houses in London in 2025.

Since Brexit, the EU has largely refused to class British financial regulation as being of an equivalent standard to that in the EU – in contrast to its assessment of similar rules in the United States, China, Japan and Canada.