BoE outlines CCP resolution execution and resolvability outcomes
The Bank of England has published a discussion paper outlining its current thinking on central counterparty (CCP) resolution execution and resolvability outcomes. The paper seeks feedback from stakeholders on three specific resolution topics and preliminary resolvability outcomes by 4 September 2026.
Ensuring stability: The CCP resolution imperative
Central counterparties (CCPs) are vital for financial system stability, both in the UK and globally.
Despite strong resilience, a CCP may face extreme stresses leading to failure, risking wider financial disruption.
Thus, in line with international standards, CCPs must be 'resolvable' – meaning their failure can be managed without excessive disruption, critical service interruption, or public fund exposure.
The Bank of England, as resolution authority, oversees the UK's CCP resolution regime, effective since late 2023.
The Bank develops strategies and plans for each UK CCP to ensure resolvability, guided by its financial stability objective.
Resolving a CCP is a tail-risk event, often demanding urgent intervention to stabilise services and prevent contagion.
This requires rapid operational capacity from the Bank and robust capabilities from CCPs to support effective resolution.
Navigating complex resolution scenarios
Key resolution execution topics explored include managing complex resolution cash calls and returning value to CCP creditors after non-default loss events (e.g., operational or cyber risks).
The paper also covers considerations for executing a statutory partial tear-up (PTU) when clearing members default, aiming to restore a matched book.
Furthermore, preliminary 'resolvability outcomes' are outlined.
These outcomes emphasize a CCP's capabilities to deploy recovery and resolution tools, secure continuity of critical clearing services, and provide essential data and analysis to authorities during resolution.
The Bank holds statutory powers to direct CCPs to address identified barriers, ensuring proportionate requirements.
The devil in the operational detail
The paper underscores the immense operational complexity of resolving a CCP, a tail-risk event demanding rapid, decisive action.
While the framework is robust, the real challenge lies in ensuring practical execution across diverse, fast-evolving scenarios.
Stakeholder feedback on these intricate details is therefore critical for a truly effective and proportionate regime.