Counterparty

In simple terms a counterparty is one side of a trade, for example the counterparty to a seller is the buyer. A counter party can be an individual, a business, or an organisation such as even a government, and carries associated counterparty risks, normally financial and associated with the other party not performing or fulfilling their side of a transaction.

In modern financing a counterparty may not actually be known as the counterparty as risk has been mitigated to a clearing firm, central counterparties or a central counterparty clearing house (CCP). These organisations are normally financial institutions that are registered and regulated for the sole purpose of taking on counterparty credit risk between different parties in a transaction. They help facilitate derivatives and equities trading, providing clearing and settlement services for trades in foreign exchange, securities, options, and derivative contracts. As development and construction projects often involve high financial risks both the term counterparty and clearing house are relevant.

Within the European Union there is a Central Counterparties (CCPs) list of institutions who have been authorised to offer services and activities in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR).

When the UK left the European Union, The European Union (Withdrawal) Act 2018 (EUWA) repealed the European Communities Act 1972 and converted into UK domestic law the existing body of directly applicable EU law. The purpose of the EUWA being to provide a functioning statute book directly after leaving the EU. Specific guidance on these matters in included in the Government The Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2018. The EUWA gives Ministers powers to make Statutory Instruments (SIs) to prevent, remedy or mitigate any failure of EU law to operate effectively, or any other deficiency in retained EU law, contingency preparations for financial services legislation are referred to as ‘onshoring’.

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