The WFE Warns That BoE Proposed CCP Rules Risk Harming UK Competitiveness

The World Federation of Exchanges (WFE), the global industry association for exchange groups and central counterparties (CCPs), has cautioned the Bank of England that elements of its proposed reforms for UK CCPs risk diverging unnecessarily from international standards, creating operational and economic burdens without commensurate supervisory benefits.

Disproportionate margin modelling disclosure:
A key concern is the Bank’s proposal to require UK CCPs to disclose detailed information on their margin models to allow market participants to replicate them. This goes beyond international standards and would expose the proprietary methodologies and algorithms that CCPs have developed to maintain robust risk management practices. Such disclosure requirements would weaken the position of UK CCPs, disincentivise innovation in margin modelling, and reduce the UK’s attractiveness as a global clearing hub. We urge the Bank to adopt a more proportionate, internationally-consistent approach, such as high-level disclosures that meet transparency objectives without eroding IP protections.

Porting client accounts during default events:
Additionally, we advise that the Bank’s proposed framework to incentivise porting would have unintended consequences for many end-users. In particular, the proposals would have a significant impact on users of net omnibus account structures, wherein a large number of clients would all need to agree ex-ante to use the same backup clearing member. Without unanimous agreement, clients would face severe constraints during a default event, especially under stressed market conditions. We recommend allowing clients who are highly unlikely to port to opt out ex-ante and enable CCPs to support porting more effectively by sharing portfolio data with alternative clearing members and accept collateral directly during the porting period. We also oppose linking default fund requirements to the perceived portability of clients, as this would further penalise users of net omnibus accounts who may not be able to afford to move to a more-portable segregated account structure. 

Skin-in-the-game:
Finally, the WFE is concerned about the Bank’s proposal to mandate CCPs to hold an additional tranche of prefunded “second skin-in-the-game” (SSITG) resources - set at 25 percent of risk-weighted capital - despite no clear evidence that such a requirement is necessary for financial stability. This UK-only uplift would tie up capital and liquidity that could otherwise support productive economic activity. Linking SSITG to the size of the default fund would also misalign incentives by effectively making CCPs underwrite the risks brought by clearing members and end users, while operationally, the proposed one-month replenishment requirement is impractical during periods of stress. The WFE urges a more risk-sensitive, internationally aligned, evidence-based approach to resource calibration.

Nandini Sukumar, CEO of the World Federation of Exchanges, said, “Several elements of the Bank’s proposals fail to deliver intended improvements in financial stability. We encourage the Bank to work closely with industry to develop a framework that aligns with international standards and maintains appropriate incentives across the clearing ecosystem.”

Read the full consultation response here.