The UK Investment Management Association said it fully supports the introduction of legislation for CCPs ahead of the EU. Responding to the HM Treasurys Financial Sector Resolution: Broadening the Regime consultation paper, the trade body says all CCPs should be considered systemic.
The government launched the consultation in August on proposals to ensure that if parts of the financial system other than banks run into trouble, they can fail in a way that does not threaten financial stability, without requiring taxpayer support. The consultation focuses on investment firms and financial holding companies, CCPs, other financial market infrastructures (such as payments systems), and insurers.
Whilst the IMA agrees that there should be powers to require further contribution from members and shareholders in the event that the CCP is exposed to uncovered losses, the body wants to see safeguards to ensure that such calls do not impact clients of clearing members in increased margin requirements.
Guy Sears, IMAs Wholesale Director, said: HMT should be applauded for proposing a resolution regime for CCPs ahead of Europe. Given the UKs position as a global asset management center, the protection of client positions and margin must be a key objective of any new regime.
But we disagree with the proposal to extend the resolution regime to firms not contemplated by the European proposals. Given the cost involved in preparing recovery and resolution plans, HMT have cast the net too wide by including agency asset managers. They are already proportionately regulated in the UK in relation to wind-down planning and their international competitiveness must not be diminished by overly cautious thinking on systemic risk.
The IMA said different labeling for UK investment firms is needed. The category of firms impacted by the EUs Regulatory Reform Dialogue (RRD) and HMTs proposal differ in definition as follows: -EU RRD an investment firm as defined in Article 3(1)(b) of Directive 2006/49/EC that are subject to the initial capital requirement specified in Article 9 of that Directive-HMT non-bank resolution a UK institution which is an investment firm for the purposes of Directive 2006/48/EC on the capital adequacy of investment firms and credit institutions.
(JDC)