Building Societies cleared to clear

The UK Government has amended the Building Societies Act to allow the societies and their subsidiaries to become clearing members. EMIR’s Category 4 clearing obligation will apply from 21 December 2018, comprising all 44 of the UK’s building societies, mandating the central clearing of prescribed derivatives. The amendment is made to section 9A (1)(c) of the Building Societies Act 1986 (BSA 1986) which confines the societies’ use of derivatives to hedging. This runs counter to Article 37 of EMIR which enables a CCP to require its members to bid on the portfolio of a defaulting member. Absent the amendment, a building society would be prohibited from this activity, rendering it unable to become a clearing member at certain CCPs, potentially creating an unlevel playing field with respect to the banks. The amendment order comes into force on 6 April 2018.