Central counterparties (CCPs) play an important role in financial markets, increasing efficiency and reducing risks in bilateral trades by interposing themselves between buyers and sellers. Where a financial contract is centrally cleared, the CCP becomes the buyer to every seller and the seller to every buyer, providing assurance that the obligations under those contracts will be fulfilled.
Given the key role that CCPs play in the financial system, CCPs and resolution authorities must maintain clear and robust recovery and resolution arrangements to respond effectively to periods of significant stress.
Schedule 11 of the Financial Services and Markets Act 2023 (FSMA 2023) introduced a new regime for resolving CCPs that are deemed to be failing or likely to fail. The regime provides the Bank of England (the Bank) and His Majesty’s Treasury (HMT) with several stabilisation options to resolve CCPs effectively, protecting financial stability, taxpayers and the economy while maintaining the critical functions of the CCP.