On July 9, the European Commission (the Commission) published a communication to help national authorities, businesses and citizens prepare for the changes that will arise at the end of the Brexit transition period on December 31 (the Communication).

Most importantly, the Commission notes that it is considering the adoption of a time-limited equivalence decision in respect of UK central counterparties (CCPs) that clear derivatives for European Union (EU) clearing members. The adoption of such an equivalence decision will ensure that UK CCPs may continue to provide such services following the expiry of the transition period and thus avoiding a clearing ‘cliff edge.’

The Commission notes that such a time limited decision would allow EU-based CCPs to develop further their capacity to clear relevant trades in the short and medium term, whilst also providing EU clearing members with time to implement the necessary steps to reduce their systemic exposure to UK market infrastructures.

In terms of a broad equivalence regime between the EU and UK, the Commission requested that the UK complete questionnaires covering 28 equivalence areas. By the end of June, only four questionnaires had been completed and returned to the Commission. Consequently, the Commission could not conclude its equivalence assessments by the end of June. The Commission will continue the assessments based on further replies that it is currently receiving from the UK.

The Communication is available here.