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December 05, 2018

EC published Implementing Regulation (EU) 2018/1889 on the extension of transitional periods related to own funds requirements for exposures to central counterparties (CCPs), as set out in the Capital Requirements Regulation, or CRR, (575/2013) and the European Market Infrastructure Regulation, or EMIR (648/2012). The fifteen-month periods referred to in Article 497(2) of CRR and in the second subparagraph of Article 89(5a) of EMIR, as most recently extended in Implementing Regulation (EU) 2018/815, are being extended to June 15, 2019, by additional six months. Regulation (EU) 2018/1889 shall enter into force on the third day following that of its publication in the Official Journal of the European Union.

To avoid disruption to international financial markets and to prevent penalizing institutions by subjecting them to higher own funds requirements during the processes of recognition of existing third-country CCPs, Article 497(2) of CRR established a transitional period during which third-country CCPs with which institutions established in EU clear transactions may be considered qualifying CCPs by those institutions. Article 89(5a) of EMIR requires certain third-country CCPs to report, for a limited period of time, the total amount of initial margin they have received from their clearing members. That transitional period mirrors the one laid down in Article 497(2) of CRR. Both transitional periods were set to expire on June 15, 2014. These transitional periods have most recently been extended until December 15, 2018 Via the Implementing Regulation (EU) 2018/815. Article 497(3) of CRR empowers EC to adopt an implementing act to extend the transitional period for own funds requirements by six months in exceptional circumstances.  That extension should also apply in respect of the time limits laid down in Article 89(5a) of EMIR. 

Out of the CCPs established in third countries that have already applied for recognition in accordance with Article 25 of EMIR, ESMA has recognized 32 CCPs. The remaining third-country CCPs are awaiting recognition and their recognition process will not be completed by December 15, 2018. The need to avoid disruption to markets outside of the Union, which led to the previous extensions of the transitional period laid down in Article 497(2) of CRR, would therefore remain after the expiry of the extension of the transitional period set out in the Implementing Regulation (EU) 2018/815. A further extension of the transitional period should enable institutions established in the Union (or their subsidiaries established outside the Union) to avoid significant increase in the own funds requirements due to the lack of completion of the recognition process for CCPs, which provide, in a viable and accessible way, the type of clearing services that institutions established in the Union (or their subsidiaries established outside the Union) require. An additional six-month extension of the transitional periods is, therefore, appropriate.

 

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Effective Date: December 08, 2018

Keywords: Europe, EU, Banking, Securities, CRR, EMIR, Transitional Period, CCP Exposures, Own Funds Requirements, EC

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