Recent reporting by Samuel Wilkes of Risk.net highlights that mandatory clearing for UK government bonds and repurchase agreements may be on the horizon, though implementation faces significant challenges and industry resistance. The Bank of England appears to be seriously considering this regulatory approach following similar moves in the US Treasury market, albeit with notable hesitation from market participants including banks and other financial institutions.
The Bank of England (BoE) is actively examining the possibility of requiring UK government bonds (gilts) and associated repurchase agreements to be cleared through central counterparties (CCPs), according to multiple sources in a recent Risk.net article. As reported by Samuel Wilkes on March 12, 2025, this potential mandate would mirror similar requirements being implemented in the US Treasury market, though the BoE has yet to make any firm commitments to this course of action.
In this evolving regulatory landscape, industry experts are already voicing concerns. “They make no secret that they’d like clearing, and people like me push back,” notes Glenn Handley, a securities financing consultant at SecFin Solutions and former senior repo business executive at HSBC. Handley further elaborates on the tension between regulators and market participants: “The Bank’s attitude is: ‘well, why not mandate it?’ But the banks certainly don’t want that”.
This potential UK mandate appears to be gaining traction in regulatory circles following the US Securities and Exchange Commission’s (SEC) move toward mandatory clearing for Treasury securities. Though the SEC recently announced a delay, pushing compliance deadlines to December 2026 for cash trades and June 2027 for repo transactions, the direction of travel remains clear across major financial markets 4.
The BoE’s interest in gilt repo clearing stems from recent market stress events that exposed vulnerabilities in the current system. Two significant episodes have particularly influenced regulatory thinking: the “dash for cash” at the onset of the COVID-19 pandemic in 2020 and the liability-driven investment (LDI) crisis that roiled UK markets in 20221.
In response to these events, the BoE conducted a novel stress test called the system-wide exploratory scenario (SWES). This exercise assessed how different market participants would react during stressed conditions and revealed concerning behaviour patterns. A major finding was that dealers would likely withdraw from repo markets during periods of stress, potentially cutting off critical cash financing to buy-side clients precisely when they need it most1.
According to the SWES findings, more than 80% of banks indicated they would be unwilling to extend additional repo financing to at least one type of counterparty during market stress. Even more concerning, a small group of banks stated they would not even roll over existing arrangements with certain counterparties during turbulent conditions 1.
Central counterparty clearing offers potential solutions to these market resilience issues. CCPs mitigate counterparty credit risk through rigorous margining practices and robust default management procedures. In theory, this framework could provide dealers with greater confidence to maintain financing operations during market turbulence and might even support all-to-all repo trading when traditional banks step back1.
Bank of England Governor Andrew Bailey has publicly acknowledged this potential benefit. Speaking at a conference in February, Bailey noted: “It is critical that we have and develop tools of assessment and intervention. But these interventions may not always need to be more regulation. They can be liquidity facilities, and they can be to improve areas of the financial infrastructure, such as introducing clearing for gilt repo, a conclusion of our SWES”.
Supporting this direction, a BoE research paper published in June 2023 indicated that comprehensive clearing in the gilt market could substantially improve market resilience. The paper estimated that netting of cleared transactions would reduce bank repo exposures by at least 40%, boosting dealers’ leverage ratios by approximately three basis points. This represents a meaningful improvement given that UK banks are required to maintain a minimum leverage ratio of 3.25% 3.
The US experience with implementing mandatory clearing for Treasury securities provides valuable lessons for UK policymakers. Former SEC Chairman Gary Gensler championed the introduction of this mandate to strengthen market resilience after the COVID-induced market stress of 2020 revealed significant weaknesses.
After adopting the final rule in 2023, the SEC recently extended compliance deadlines by one year, with cash trades now required to clear by December 2026 and repo transactions by June 2027. This delay reflects the complexity of transitioning to a centrally cleared model and the operational challenges faced by market participants 4 7.
The extension came after industry concerns about implementation readiness. Several unresolved issues remain, including the development of a “done-away” market structure to expand clearing access, establishing standard documentation and supporting legal opinions, completing significant onboarding processes for direct participants and clients, and developing necessary middleware solutions and platforms 10.
Despite these challenges, industry observers note that the direction remains unchanged: central clearing is coming, and firms must prepare accordingly. The extension presents an opportunity for a more strategic approach beyond minimum compliance requirements 7.
While the US proceeds with its implementation plans, the UK market faces distinct challenges that may result in a considerably longer timeline. Columbia Threadneedle notes in a recent analysis that “mandatory clearing requirement would be years if not a decade away” for the UK gilt repo market 9.
This significant difference stems from structural distinctions between the US and UK markets. US client repo trading is predominantly overnight or sub-one-week in duration, with a substantial portion already centrally cleared. In contrast, centrally cleared repo in the UK remains largely confined to interbank transactions, with high haircuts and operational costs deterring broader participation 9.
Additionally, questions exist about the BoE’s regulatory authority to mandate clearing for gilts and gilt repos. While the regulator has been empowered to modify the UK’s version of EU clearing rules (European Market Infrastructure Regulation or EMIR), legal experts question whether these powers extend to instruments beyond over-the-counter derivatives.
As one UK law firm partner observed: “I don’t know if there’s necessarily something sitting in existing legislation that would be a hook for the BoE just to say they’re going to require clearing of this new type of asset class. If you’re going to make a change of this significance, I think you’d want to do the legislative route rather than just a rule-making”.
The financial industry remains largely unconvinced about mandatory clearing for gilt repo. Some market participants doubt it would significantly improve market conditions, while others argue for alternative approaches to encourage greater clearing participation.
Sarah Crowley, a director within the International Swaps and Derivatives Association’s clearing services team, suggests a cautious approach: “Let’s wait and see what happens in the US. It’s unclear what greater clearing of repos will mean for the liquidity of those markets and access to repo clearing for smaller clients”.
Crowley further notes that key features of repo markets differ across jurisdictions, making it questionable whether approaches developed for the US would be appropriate elsewhere. The implementation complexity evident in the US delay underscores this concern.
Rather than mandating clearing outright, the BoE could pursue less direct approaches, such as adjusting prudential standards to increase costs for non-cleared trades or reduce costs for cleared trades. This would create incentives for clearing without requiring it through regulation.
The UK is not alone in considering mandatory clearing for government bond markets. European Union rule-makers are reportedly discussing similar requirements with industry stakeholders, with the European Commission actively participating in these conversations.
One industry source observed: “The US clearing mandate has definitely sparked interest for other jurisdictions, including the UK, and there are also discussions about euro government bonds in Europe. It’s definitely a topic for Europe and it’s probably one that is going to gain momentum”.
At the international level, the Financial Stability Board has recommended that national authorities explore ways to increase central clearing in government bond cash and repo markets as a mechanism for enhancing market resilience 3.
The prospect of mandatory clearing for gilt repo in the UK represents a significant potential shift in market structure, but one that faces substantial challenges and industry skepticism. While the Bank of England clearly sees value in expanded clearing as evidenced by its research and public statements, implementation would require careful navigation of legal authorities, market differences, and industry concerns.
As the US proceeds with its delayed but ongoing implementation of Treasury clearing mandates, UK authorities will likely monitor developments closely while continuing their own exploratory work. The coming years may see incremental movements toward greater clearing in gilt markets, potentially through incentive-based approaches rather than outright mandates in the near term.
For market participants, the prudent approach appears to be careful preparation and engagement with developing regulatory thinking, while recognising that any mandatory clearing regime for UK gilt repo would likely be implemented on a significantly longer timeline than its US counterpart.
Glenn Handley, SecFin Solutions Limited.
SecFin Solutions is a specialist management consultancy and training provider focused on the global securities finance and collateral markets.
Founded by industry expert Glenn Handley, the firm delivers expert advisory services, strategic consulting, and professional education to financial institutions and individuals navigating complex market challenges. With a deep understanding of repo, securities lending, and collateral management, SecFin Solutions helps clients optimise their operations, comply with evolving regulations, and enhance their market positioning through tailored solutions and high-impact training programs.
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