EU ambassadors approved the position of European Council on a proposed framework for clearing houses and their authorities to prepare for and deal with financial difficulties. They invited the presidency to start negotiations with the European Parliament as soon as possible. The proposed regulation of the European Parliament and of the Council on a framework for the recovery and resolution of central counterparties (CCPs) amends Regulations (EU) No 1095/2010, (EU) No 648/2012, and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, and (EU) 2017/1132. The regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
The proposed rules aim to provide national authorities with adequate tools to manage crises and to handle situations involving CCP failures. They build on the same principles as the recovery and resolution framework applying to banks. The main objectives of the reform are to preserve clearing houses' critical functions, to maintain financial stability, and to prevent taxpayers from bearing the costs associated with the restructuring and the resolution of failing clearing houses. The proposed framework takes into account the global and systemic nature of CCPs. It provides for close coordination between national authorities in the framework of "resolution colleges" to ensure that resolution actions are applied in a coherent manner, taking into consideration the impact on affected stakeholders and financial stability. The position of European Council sets out a three-step approach:
- The framework will be based on prevention and preparation. CCPs and resolution authorities are required to draw up recovery and resolution plans on how to handle any form of financial distress which would exceed a CCP's existing resources. If resolution authorities identify obstacles to resolvability in the course of the planning process, they can require a CCP to take appropriate measures.
- Supervisory authorities have the possibility to intervene at an early stage—that is, before the problems become critical and the financial situation deteriorates irreparably. For example, they can require a CCP to undertake specific actions in its recovery plan or to make changes to its business strategy or legal or operational structure.
- In the unlikely case of a CCP failure, national authorities can use resolution tools. These include the use of write-down of instruments of ownership, a cash-call to clearing members, the sale of the CCP or parts of its business, or the creation of a bridge CCP. While in certain limited cases, extraordinary public support may be provided as a last resort, the purpose of resolution actions is to minimize the extent to which the cost of the failure of a CCP is borne by taxpayers, while ensuring that shareholders bear an appropriate part of the losses.
The Council suggests that the new framework should start applying two years after the date of entry into force of the regulation to allow time to adopt all implementing measures and for market participants to take the necessary steps to comply with the new rules. The European Parliament established its first reading position on this file in March 2019. Trialog negotiations are, therefore, ready to start as soon as possible.
Effective Date: OJ+20 Days (Proposed)
Keywords: Europe, EU, Banking, Securities, OTC Derivatives, EMIR, CCPs, Recovery and Resolution, SFTR, European Parliament, European Council
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Hong Kong Monetary Authority (HKMA) announced that the Green and Sustainable Finance (GSF) Cross-Agency Steering Group has launched the information and data repositories and outlined the progress made in advancing the development of green and sustainable finance in Hong Kong.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
The Network for Greening the Financial System (NGFS) published a report that explores the feasibility of integrating the G-Cubed general equilibrium model into the NGFS suite of models.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.