The Bank of England’s approach to using its requirements and permissions powers to facilitate mobilisation of new CCPs

1: Introduction

1.1 This statement of policy (SoP) sets out the Bank of England’s (Bank’s) approach to using its requirements powers to set de minimis limits on new central counterparties’ (CCPs’) operations during mobilisation and its permissions power to give permission to waive or modify certain rules, reflecting the interlinked nature of the powers in facilitating the mobilisation of new CCPs in practice. This SoP follows on from the publication of the Bank of England’s supervisory approach to onboarding new financial market infrastructure firms (hereon the new FMI onboarding approach), which stated that the Bank would consult on and set out its approach to using the permissions power in the context of mobilisation. It is advised that any prospective CCP engage with the new FMI onboarding approach in the first instance.

1.2 Mobilisation is a discretionary stage for a prospective CCP that occurs after recognition. During mobilisation, a new CCP would operate under de minimis limits and be subject to proportionate regulatory oversight. Mobilisation can provide an efficient way for prospective CCPs to provide further assurance that they are able to meet their business-as-usual regulatory requirements, build out their capabilities, and facilitate live testing with de minimis amounts of business. Mobilisation is not the stage at which prospective CCPs should commence the building out of their business strategies, processes, and systems, but instead provides firms additional time to deliver these elements while being subject to de minimis limits.

1.3 A prospective CCP should anticipate that the levels of activity allowed during mobilisation would be correspondingly minimal, enabling live testing rather than the volume of activity or risk that the firm might expect during a scaling stage or business-as-usual operations. The prospective CCP will need to complete its operational build out and fully meet any outstanding rules for which it receives a modification or waiver by the end of the mobilisation period. At that point, the Bank would review and could lift the de minimis limits, subject to the CCP proceeding to scaling or business-as-usual operations.

1.4 The precise form of any de minimis limits will be determined on a case-by-case basis and will reflect engagement between the prospective CCP and the Bank. As an example, the Bank expects that these de minimis limits could include, non-exhaustively, limits on different aspects of the prospective CCP’s business, such as the scope and volume of clearing activity, CCP membership, and loss and/or risk metrics.^{footnote [9]} For example, a prospective CCP might consider applying for limits on initial margin or notional, taking into account the size of relevant contracts, per a set number of clearing members. A prospective CCP should engage with the Bank as early as possible to discuss the appropriate size and types of de minimis limits for its particular firm.

1.5 This SoP is relevant to all prospective UK CCPs seeking recognition by the Bank.

1.6 Entities seeking recognition as a CCP in the UK should engage with the new FMI onboarding approach and make contact with the Bank^{footnote [10]} in the first instance. The nature of this engagement will depend on the complexity and scale of the proposed application, and the firm’s readiness to submit a formal application. The Bank encourages early engagement by prospective CCPs that are considering submitting an application to enter a mobilisation period, particularly if the firm is seeking to modify or waive any rules as part of its application. The permissions power would be used where an amendment to a specific rule or rules is sought, but in general the Bank would expect to take a proportionate approach to supervisory expectations during mobilisation.

1.7 To enter mobilisation, a prospective CCP should submit a mobilisation application. This should include the prospective CCP’s provisional application for a voluntary requirement (VREQ) to operate under de minimis limits and, where appropriate, a provisional permissions application to modify or waive certain specified rules. In practice, the Bank expects this to be done as part of one mobilisation application to be submitted alongside the prospective CCP’s recognition application (Sections 2 and 3). The Bank expects that it would likely not give any mobilisation-related permissions to a prospective CCP where that firm has not also applied for a VREQ requiring the firm to conduct activity under appropriate de minimis limits.

1.8 Under the Financial Services and Markets Act 2000 (FSMA), only recognised CCPs may apply for a VREQ or permission to modify or waive rules. As such, the VREQ and permissions applications will only be legally made once recognition is granted. While the Bank will consider VREQ and permissions applications to be ‘provisional’ between being submitted to the Bank and being legally submitted at the point of recognition, the Bank expects mobilisation applications to be final or near-final at the point of submission. There may be scope to revise the provisional VREQ or permissions applications prior to their being legally made if required during the Bank’s assessment or by a change in the prospective CCP’s circumstances. The Bank will provisionally assess the mobilisation application materials in conjunction with the prospective CCP’s recognition application in order to give a decision on the mobilisation application immediately upon recognition.

1.9 The Bank’s approach to assessing applications to operate under de minimis limits reflects the SoP on The Bank of England’s approach to statutory notice decisions for use of its requirements powers. The requirements powers are a supervisory tool that allow the Bank to require an entity to take an action or refrain from taking a specified action. The requirements powers can be voluntary in nature, where an entity makes an application (a VREQ) to the Bank for a requirement to be imposed, varied or cancelled. The Bank can also impose, vary, or cancel a requirement on its own initiative (an OIREQ). When imposing, varying, or cancelling requirements on the basis of an application by the CCP, the Bank would exercise its powers under section 55L(5) (s55L(5)) of FSMA, as applied by paragraph 9B(7) of Schedule 17A to that Act.

1.10 The Bank is required to publish details about Decision Notices relating to a VREQ application refusal as it considers appropriate, unless the Bank considers it would be unfair to the entities concerned or detrimental to the stability of the UK financial system to do so. In addition, subject to restrictions on the disclosure of confidential information, the Bank retains its discretion to publish information about a VREQ application that it has accepted. The Bank would consider the extent to which publication would advance its financial stability objective, the principle that the Bank should exercise its functions as transparently as possible, and the impact on the entity concerned.

1.11 The Bank’s approach to giving permission to modify or waive certain rules reflects the draft SoP on The Bank of England’s approach to rule permissions and waivers. The permissions power applies to the Bank’s rules, which for CCPs are set out in the Bank of England’s FMI Rulebook (hereon the Bank’s CCP Rulebook). This SoP on the Bank’s approach to using its powers to facilitate CCP mobilisation is a subject-specific SoP for the purposes set out in the Bank’s approach to rule permissions and waivers. This means the Bank expects to follow the assessment criteria set out in this subject-specific SoP.

1.12 The Bank expects all rules set out within the Bank’s CCP Rulebook to fall within the scope of eligible rule permissions during mobilisation for CCPs, excluding the Fundamental Rules, which are high-level, outcomes-based principles that the Bank expects to apply proportionately during mobilisation. Should a CCP wish to modify or waive a rule outside the scope of this subject-specific SoP, the general approach to rule permissions would apply. In that case, applications would be assessed against the statutory criteria under the general modification and waiver power (section 138A of FSMA, as applied and modified by paragraph 10(1)(b) of Schedule 17A to FSMA).

1.13 Where relevant, this SoP also sets out the Bank’s approach for variations to those permissions, and circumstances in which the Bank may take the decision to revoke a permission. When giving, varying or revoking these permissions, the Bank would exercise its powers under section 138BA (s138BA) of FSMA, as applied by paragraph 10 of Schedule 17A to that Act.

1.14 The Bank is required to publish details of permissions that have been approved, unless it considers that it would be inappropriate or unnecessary to do so. In addition, in line with the SoP on the Bank’s approach to rule permissions and waivers, the Bank will publish information on how long it takes to make decisions on permissions applications.

1.15 This SoP should also be read in conjunction with Chapter 3 of the SoP on the Bank of England’s approach to supervisory processes (model changes, recognition orders and variations of recognition orders) and margin permissions, for further detail on the Bank’s approach to recognition applications.

2: Application for mobilisation, including for voluntary requirements to operate under de minimis limits and permission to modify or waive certain rules

2.1 A prospective CCP that wishes to take advantage of a mobilisation period should submit a mobilisation application to the Bank and should submit this alongside their formal application for recognition. The mobilisation application (Appendix) should include a provisional VREQ application to operate under de minimis limits and, where appropriate, a provisional permissions application to modify or waive certain rules during the mobilisation period. This must be in writing and consist of a completed application form (as set out in the Appendix) and supporting evidence.

2.2 The prospective CCP should engage with the Bank as early as possible ahead of submitting its mobilisation application to discuss appropriate de minimis limits. Where the prospective CCP has identified a suitable, detailed de minimis limit(s) ahead of submission, it should include this proposal in the provisional VREQ application section of its mobilisation application. Otherwise, the prospective CCP should select the checkbox indicating that, within 60 working days of the date on which the mobilisation application is submitted, the firm will submit a provisional VREQ application containing a suitable, detailed de minimis limit(s) proposal that reflects any further engagement with the Bank.

2.3 When submitting its provisional VREQ application, the prospective CCP should include the details of its desired ‘requirement’, namely its de minimis limit(s) proposal. The proposal should set out how the de minimis limit(s) would constrain the volume of risk or activity to a minimal level that the new CCP would be able to undertake to levels suitable for live testing purposes. The application should also indicate whether the prospective CCP has engaged with the Bank regarding the proposed de minimis limit(s) and briefly summarise any engagement. Prospective CCPs should bear in mind that, while the Bank will engage with the firm on potentially appropriate de minimis limits, the Bank will take a final decision on the proposed limits based on the merits of the application and will retain its discretion to reject unsuitable applications.

2.4 If the prospective CCP is seeking permission to modify or waive any rules, it should engage with the Bank as early as possible ahead of submitting its mobilisation application. Discussing the appropriateness of the desired rule permission(s) with the Bank in advance will help make the application process as efficient as possible for both the prospective CCP and the Bank. The provisional permissions application in the relevant section of the mobilisation application should identify the specific rules for which the prospective CCP is seeking a modification or waiver. When deciding how many and what type of rule permission(s) it might require, the prospective CCP should take into consideration the purpose of mobilisation, including to provide further assurance that it is able to meet its business-as-usual regulatory requirements, build out its capabilities, and conduct live testing with de minimis amounts of business.

2.5 In practice, the Bank expects that prospective CCPs might seek to modify or waive one or more of the following rules within the CCP rules in the Bank’s CCP Rulebook during mobilisation:

• Minimum capital requirements, as set out in rule 2.1 of the Capital Part.
• Skin in the game and second skin in the game requirements, as set out in rule 2.4 of the Default Waterfall Part.
• Independent board member appointments, as set out in rule 12.2 of the Management and Governance Part.
• External risk committee appointments, as set out in rule 13.1(1) of the Management and Governance Part.
• Recovery time objective (RTO) for all critical functions of less than or equal to two hours, as set out in rule 3.2(4) of the Business Continuity Part.
• Secondary processing site with identical capacity, as set out in rule 5.2 of the Business Continuity Part.
• Full-scale disaster-recovery (DR) tests including external parties and live site switchover, as set out in rule 6.2 of the Business Continuity Part.

2.6 In addition to the specific rules set out in paragraph 2.5, the Bank acknowledges that rules within other Parts of the Bank’s CCP Rulebook might be relevant to a prospective CCP’s particular business model and application. The Bank anticipates that these might in particular include certain rules within the Operational Resilience Part, Business Continuity Part, Margin Requirements Part, and the Notification of Third-Party Arrangements and Operational Incident Reporting Rules (hereon IOREP reporting rules).

2.7 The Bank does not consider the Fundamental Rules to fall within the scope of this policy but, as part of its general supervisory approach, the Bank expects to take a proportionate approach to the application of these rules during mobilisation.

2.8 When deciding which rule permission(s) to seek, prospective CCPs should take into account the desired duration of the mobilisation period and that the firm should be able to demonstrate that it can fully meet the unmodified version of any modified or waived rules by the end of the agreed mobilisation period. The mobilisation application includes an attestation that the prospective CCP understands the purpose of mobilisation.

2.9 The mobilisation application should set out the duration of the mobilisation period desired by the prospective CCP. The Bank expects that the mobilisation period would likely last for up to 12 months. As such, a prospective CCP should only submit a mobilisation application once it has developed near-final processes and reasonably expects that it will be able to fully meet any modified or waived rules by the time it intends to exit mobilisation. A prospective CCP may request a shorter mobilisation period, provided that it will be able to demonstrate that it will complete its build out and fully meet any modified or waived rules by the end of that period.

3: Supporting evidence regarding the criteria for permissions and voluntary requirements

3.1 Where a prospective CCP seeks permission to modify or waive one or more of the rules set out under this SoP, the supporting evidence should be sufficiently detailed. This should allow the Bank to confirm the prospective CCP could operate during the mobilisation period without posing a risk to financial stability and to assess whether the prospective CCP’s mobilisation plan will enable it to fully meet these regulatory requirements by the end of the mobilisation period.

3.2 The supporting evidence should, at a minimum, include the following:

• General mobilisation application supporting evidence:
  • A mobilisation plan setting out how the prospective CCP plans to finish the build out of its capabilities and fully comply with any modified or waived rules by the end of its desired mobilisation period, including target dates and key dependencies.
  • Key governance documents demonstrating board sign-off on the mobilisation plan.
• VREQ application supporting evidence:
  • Rationale for the proposed de minimis limit’s (or limits’) ability to constrain volumes of risk or activity to a minimal level that would support live testing, taking into account the particular business model of and risks posed by the prospective CCP.
• Permissions application supporting evidence:
  • A business case setting out the justification for the proposed rule modifications or waivers, taking into consideration the purpose of mobilisation as set out in the new FMI onboarding approach and setting out why the prospective CCP cannot meet these requirements at the point of recognition without a modification or waiver.
  • Where relevant, a self-assessment by the prospective CCP setting out the extent to which it has already complied with or made progress towards compliance with the rules for which it is seeking a modification or waiver. This self-assessment should include reasoning and evidence necessary to demonstrate compliance (ie not just an assertion of compliance).

3.3 The Bank may subsequently request additional evidence to inform its assessment of a prospective CCP’s application.

4: Assessment of the mobilisation application

4.1 The Bank will provisionally assess the appropriateness of the de minimis limits proposed under the provisional VREQ application section of the mobilisation application. If the Bank finds the proposed de minimis limits to be inappropriate or insufficient, the Bank may reject the VREQ application and the prospective CCP will need to resubmit. The Bank expects that it would likely not grant any mobilisation-related modifications or waivers (permissions) to a prospective CCP where that firm has not also successfully applied for a VREQ requiring the firm to operate under appropriate de minimis limits. The Bank therefore encourages prospective CCPs to engage with the Bank on appropriate de minimis limits as early as possible, including in advance of submitting its mobilisation application.

4.2 Where the Bank receives an application for permission to modify or waive one or more of the rules set out in paragraphs 2.5 and 2.6, and it decides to give permission, the Bank will, depending on the application received, permit the arrangement, which may be subject to conditions.

4.3 Such conditions may include setting a defined timeline (aligning with the desired duration of the mobilisation period, usually 12 months or less) and the process through which the transition to full compliance with the relevant regulatory requirements takes place, which may include intermediate steps and checkpoints.

4.4 Where the Bank gives permission for the modification or waiver of one or more of the rules set out in paragraph 2.5, the decision of the Bank will specify whether the permission given is that sought by the prospective CCP or whether a different permission has been given, such as a rule modification in lieu of a requested rule waiver, or a different rule modification than the one sought.

Factors the Bank will consider

4.5 The Bank will consider whether the levels of activity allowed by the proposed de minimis limit or limits is sufficient to allow live testing but would not allow the volume of risk or activity that a CCP might expect during scaling or business-as-usual operations. As relevant, the Bank will take into account the particular business model of and risks posed by the prospective CCP in its assessment.

4.6 The Bank will consider whether the prospective CCP has viable plans to complete the build out of its capabilities. The Bank will also consider whether the firm has sufficient capital to meet its operational funding needs throughout the duration of its mobilisation period.

4.7 Where rule permissions are sought, the Bank will base its decision on whether to give a permission or variation of permission on an assessment of the information provided. This includes whether the evidence demonstrates that the prospective CCP can reasonably expect to fully comply with the unmodified version of any modified or waived rules by the end of the mobilisation period. The Bank will also consider whether any concerns regarding particular regulatory requirements could instead be addressed within the Bank’s proportionate supervisory approach.

4.8 The Bank expects that mobilisation would last up to 12 months. In its assessment, the Bank will take into account the number and types of rule permissions sought and the desired duration of mobilisation. The Bank will then consider the feasibility of the prospective CCP’s mobilisation plan to fully implement the unmodified version of any modified or waived rules by the end of the mobilisation period.

4.9 Where permissions are sought, the Bank will consider whether the prospective CCP has concurrently applied for a VREQ to operate under de minimis limits. The Bank expects that it would likely not grant any mobilisation-related permissions to a firm where that firm has not also applied for a VREQ requiring the firm to operate under appropriate de minimis limits that allow for minimal amounts of economic activity in support of live testing.

4.10 The Bank will consider the impact of the proposed rule modifications or waivers on the safety of the prospective CCP and on financial stability more broadly. This includes whether the de minimis limits proposed by the prospective CCP are sufficient to mitigate any potential risk that a rule modification or waiver might pose.

4.11 In relation to the specific rule modifications or waivers for which the prospective CCP is seeking permission, the Bank will, in the cases set out in paragraph 2.5 above and as relevant, consider the following:

• Whether the prospective CCP, in most cases, holds at least £1 million in capital at the time of its mobilisation application, and whether it has a viable plan to fully meet its minimum capital requirement of £6.1 million by the end of mobilisation (rule 2.1 of the Capital Part).
• Whether the prospective CCP has a viable plan in place to meet its skin in the game (SITG) and second skin in the game (SSITG) requirements by the end of mobilisation^{footnote [11]} (rule 2.4 of the Default Waterfall Part).
• Whether the prospective CCP has set out in its mobilisation plan credible plans to make independent board member appointments by the end of mobilisation (rule 12.2 of the Management and Governance Part).
• Whether the prospective CCP has made, or has set out in its mobilisation plan, credible plans to make external risk committee appointments by the end of mobilisation (rule 13.1(1) of the Management and Governance Part).
• Whether the prospective CCP has set out in its mobilisation plan how it will achieve a maximum RTO for all critical functions of less than or equal to two hours (rule 3.2(4) of the Business Continuity Part).
• Whether the prospective CCP has set out in its mobilisation plan credible plans to increase the capacity at an existing secondary processing site or to have in place by the end of mobilisation a secondary processing site with identical capacity (rule 5.2 of the Business Continuity Part).
• Whether the prospective CCP has set out in its mobilisation plan how its DR tests will include external parties and live site switchover by the end of mobilisation (rule 6.2 of the Business Continuity Part).

4.12 The Bank will assess the CCP’s mobilisation plan for rule permissions not specified above on an equivalent basis as in paragraph 4.11, eg, the prospective CCP’s plans to meet the unmodified version of the relevant rule(s) as set out in the Bank’s CCP Rulebook.

Mobilisation application timelines

4.13 The Bank will confirm receipt of the mobilisation application of the prospective CCP.

4.14 The Bank will assess the completeness of the application and evaluate the information provided. An application will be considered complete by the Bank if the application covers all the matters set out in the sections ‘Application for mobilisation, including for voluntary requirements to operate under de minimis limits and permission to modify or waive certain rules’ and ‘Supporting evidence regarding the criteria for permissions and voluntary requirements’, and it contains sections setting out the provisional VREQ and permissions applications.

4.15 While the mobilisation application should be as near-final as possible at the point of submission, prospective CCPs may be able to make further revisions, following engagement with the Bank or a change in the prospective CCP’s circumstances, prior to the application being legally made. Significant revisions should be limited, but if necessary should be made as early as possible as delays to the mobilisation assessment could impact the Bank’s assessment of the prospective CCP’s recognition application. Accordingly, the Bank expects that any revisions should be made at least 30 working days before the end of the recognition application assessment window. The prospective CCP should confirm when the application is final and no further changes will be made.

4.16 Where a prospective CCP initially submits an attestation of its intent to subsequently submit a provisional VREQ application containing a detailed de minimis limit proposal, the prospective CCP should submit its provisional VREQ application containing the detailed de minimis limit proposal, reflecting interim discussions with the Bank, within no more than 60 working days from the date of submission of the mobilisation application.

4.17 The Bank will provisionally assess the mobilisation application materials in conjunction with the prospective CCP’s recognition application in order to give a decision on the mobilisation application immediately upon recognition. The Bank expects to determine the outcome of the recognition application within 120 working days, unless there are exceptional circumstances, which the Bank will aim to communicate in writing to the prospective CCP on a timely basis. The VREQ and permissions application sections of the mobilisation application will be legally made at the point of recognition and, having been provisionally assessed concurrently with the recognition application, a decision on these applications will then be taken immediately.

4.18 Early engagement with the Bank to ensure the Bank has all the information it needs to assess the mobilisation applications is crucial. Following submission of the mobilisation application, the Bank may request additional information to determine the application. Should the Bank need further information, the Bank will specify the additional information requested and the reasons for the request. Failure to provide the requested information may result in the Bank being unable to grant the mobilisation application and, consequently, not granting the recognition application if the prospective CCP would otherwise be unable to fully comply with the Bank’s rules.

4.19 If additional information is requested for the Bank’s assessment of the prospective CCP’s recognition application, the day-count will pause on the mobilisation application assessment as well until the requested information has been received, and an extra 30 working days will be added to the deadline for both assessments. Any subsequent requests for information will not affect the deadline.

4.20 The Bank will publish information on how long it takes to make decisions on permissions applications.

5: Decision on the application

5.1 Upon the mobilisation application being legally made (ie, at the point of recognition, where the Bank has granted the recognition application), the Bank will take an immediate decision, having provisionally assessed the prospective CCP’s mobilisation application materials alongside its recognition application. When the Bank has reached a decision on a mobilisation application, it will communicate this in writing to the prospective CCP.

5.2 Where the Bank approves an arrangement subject to certain conditions, or rejects an application for permission, it will state the reasons on which the decision is based. The Bank’s decision to give permission to modify or waive certain rules will likely be conditional on the prospective CCP’s having concurrently and successfully applied for a VREQ to operate under de minimis limits during the mobilisation period. A decision on these applications will be taken immediately upon recognition.

5.3 The prospective CCP should not publicly disclose information on its mobilisation application prior to the outcome of the decision by the Bank.

6: Varying or revoking a permission

6.1 Where the rule modification or waiver no longer fulfils the conditions under which the permission for the arrangement was given, or the CCP does not expect to fully meet the rules for which it had received permission for a modification or waiver by the end of mobilisation, the CCP should notify the Bank. The Bank will decide on either of the following actions:

• to introduce new conditions or amend any conditions that the permission is subject to; or
• to revoke its permission for the rule modification or waiver.

6.2 The Bank will notify the CCP immediately, stating the reasons, where it has decided in accordance with the previous paragraph. Where the CCP is aware of a change in circumstance whereby the rule modification or waiver, in accordance with the above, may no longer fulfil the conditions under which the permission for the arrangement was given, it should inform the Bank of this change in circumstance.

7: Exiting mobilisation

7.1 To exit mobilisation, the CCP will need to demonstrate that it has completed the build out of its capabilities and is able to comply with the unmodified version of any modified or waived rules as set out in the FMI Rulebook. The CCP should inform the Bank that it is ready to exit mobilisation as soon as possible and, where mobilisation is set for 12 months, at least three months in advance. To exit mobilisation, the CCP should apply to cancel its VREQ and revoke any permissions. In accordance with the new FMI onboarding approach, the CCP may then move into a discretionary scaling stage, with possible limits or restrictions, or into business-as-usual operations.

7.2 If a CCP considers it might require an extension to mobilisation in order to fully meet one or more of the rules that had been waived or modified during mobilisation, it should engage with the Bank as early as possible during the mobilisation period and at least three months before the end of mobilisation. The Bank might consider an extension to mobilisation under exceptional circumstances. Any extension must be agreed in advance of the initial mobilisation deadline.

7.3 If a CCP is unable to demonstrate that it has fully met the unmodified versions of all of the rules for which it had received permission by the end of the mobilisation period, the CCP may be unable to exit mobilisation and enter into scaling or business-as-usual operations. Failure by the CCP to fully meet any of its outstanding regulatory requirements by the end of the mobilisation period, including any extension, could result in the CCP failing to satisfy its regulatory requirements, in which case the Bank may revoke the CCP’s recognition order. As above, the CCP should engage with the Bank as early as possible regarding any concerns.