The UK is proposing legislative solvency changes to protect central counterparties from risk transfer should a member default
LONDON – The UK Treasury has published a consultation paper of proposed reforms to Part 7 of the 1989 Companies Act, modifying general solvency law to protect central counterparties – such as clearing houses and exchanges.
The paper, Modernising the insolvency protections for the operation of financial markets – proposals to reform Part 7 of the 1989 Companies Act seeks to protect clearing houses and exchanges from risk transfer, should one of their members default.
Current legislation does not recognise the commonly used ‘default funds’ used by clearing houses to offset losses of a defaulting member or the range of contracts now cleared by central counterparties.
The proposals would expand the definition of market contracts, make allowances for default funds, and address technical issues arising from ‘client accounts’ across national jurisdictions. The Treasury has set an October 16 deadline for responses.
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