U.S. and UK Financial Authorities Test Protocols for Cross-Border Clearinghouse Resolution
Updated: Sep 19
Financial regulators from the United States and the United Kingdom convened on September 3, 2026, to conduct a joint tabletop exercise focused on the cross-border resolution of central counterparties (CCPs).
The meeting included principals from the U.S. Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC), Commodity Futures Trading Commission (CFTC), and Federal Reserve Board, alongside the Bank of England.
According to a joint readout released on September 11, 2026, the exercise evaluated information-sharing protocols and crisis communication arrangements designed to support global financial stability should a major clearinghouse face severe stress or insolvency. The session is part of a multi-year collaborative initiative established in 2017 to align regulatory approaches to clearinghouse recovery and resolution across transatlantic jurisdictions.
The Mechanics of Central Clearing and Systemic Risk
Central counterparties operate at the core of modern financial market infrastructure. Acting as the buyer to every seller and the seller to every buyer, CCPs novate contracts across equity, fixed income, foreign exchange, and derivative markets. This structure reduces counterparty credit risk across financial networks by netting obligations and enforcing standardized margin requirements.
Following post-2008 financial crisis reforms—such as the Title VII mandates under the Dodd-Frank Act in the U.S. and similar clearing obligations in Europe and the UK—the volume of OTC derivatives processed through central clearing houses surged dramatically.
While this shift insulated bilateral interbank networks from isolated counterparty defaults, it concentrated risk within a small group of highly interconnected clearing houses.
In normal operations, a CCP manages participant defaults through a pre-funded default waterfall. This waterfall typically consumes the defaulting member's initial margin and default fund contributions, followed by a portion of the CCP’s own capital ('skin-in-the-game'), non-defaulting members' contributions, and potential assessment calls.
However, if unrecoverable losses exceed these pre-funded resources—whether due to extreme market volatility, simultaneous major member defaults, or non-default events such as cyberattacks—the CCP enters recovery or formal statutory resolution.
Cross-Border Resolution Challenges and Existing Frameworks
The resolution of a major CCP presents distinct challenges compared to traditional bank resolution. While bank resolution focuses on preserving critical banking functions while restructuring debt and equity liabilities, CCP resolution requires maintaining market continuity, preserving clearing operations, and managing complex derivative portfolios across multiple legal jurisdictions in real time.
Because primary derivatives venues and clearing entities operate internationally—with key institutions based in London, Chicago, and New York—a crisis at a transatlantic clearing house immediately impacts participants on both sides of the Atlantic. Without robust international coordination, uncoordinated resolution actions by separate national authorities could trigger ring-fencing of assets, conflicting stay orders on contract terminations, market fragmentation, and heightened systemic contagion.
Prior to the initiation of joint transatlantic exercises in 2017, regulatory frameworks for CCP resolution relied largely on general cross-border MOUs and regional statutory powers. The ongoing joint work program between U.S. agencies and the Bank of England seeks to operationalize these high-level commitments, establishing concrete mechanisms for real-time information exchange, joint impact assessments, and aligned regulatory actions.
Focus of the Joint Exercise and Operational Testing
The September 2026 exercise focused specifically on testing information sharing and communication protocols required during a hypothetical CCP resolution event. Regulatory principals reviewed existing frameworks to ensure that crucial quantitative and qualitative data—such as clearing member exposures, margin flows, liquidity positions, and operational status—can be rapidly shared across authorities during a fast-moving financial shock.
By walking through simulated crisis scenarios, authorities evaluate how differing legal standards and resolution toolkits interact under stress. For example, resolution authorities must evaluate the operational viability of tools like loss-allocation haircutting, variation margin gains haircutting, equity write-downs, and contract termination, while ensuring that actions taken in one jurisdiction do not violate foreign statutory mandates or exacerbate panic among international clearing members.
Implications for Infrastructure Providers and Market Participants
The ongoing development of coordinated resolution strategies directly impacts major global financial institutions, including tier-one clearing brokers, futures commission merchants (FCMs), asset managers, and market infrastructure operators.
These entities are primary contributors to CCP default funds and bear the financial liability of resolution loss-allocation mechanics.
Clear regulatory guidance on how resolution authorities will exercise their statutory powers provides market participants with greater predictability regarding liability caps, capital treatment, and operational expectations during extreme market dislocations. Additionally, clear cross-border protocols reduce the probability that clearing members face duplicate or conflicting demands from foreign and domestic regulators during a crisis.
For clearing house operators—such as CME Group, ICE Clear, and LCH—continued coordination between the SEC, CFTC, Federal Reserve, FDIC, and Bank of England helps harmonize regulatory expectations around recovery tools, capital adequacy, and operational resilience standards.
Uncertainties and Areas to Watch
While tabletop exercises improve operational readiness, several structural uncertainties remain in the realm of global clearinghouse resolution. A key unanswered question is how regulatory bodies would handle liquidity provision in a resolution scenario where a CCP lacks sufficient cash collateral to meet settlement obligations across foreign currencies.
Furthermore, legal frictions regarding the cross-border recognition of resolution actions—such as stays on termination rights or forced loss allocation—remain complex, as statutory enforcement depends on individual national legal frameworks. Market participants should monitor future regulatory disclosures, policy statements, and updated joint guidance from U.S. and UK authorities for further details on technical resolution standards and pre-funded loss-absorption requirements.
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