March 15, 2019

EC welcomed the political agreement reached by European Parliament and EU member states to ensure a more robust and effective supervision of central counterparties (CCPs) offering services in EU. The Presidency and the Parliament reached a provisional agreement on how EU and third-country clearing houses should be supervised in the future, considering the effects of Brexit on the European financial system. The new rules will be implemented through a revision of European Market Infrastructure Regulation (EMIR) and a revision of the statute of the European System of Central Banks (ESCB) and ECB.

The reform is intended to strengthen CCP considering the growing size, complexity, and cross-border dimension of clearing in Europe. The agreed text establishes a CCP supervisory committee in ESMA; the committee will be composed of an independent Chair, competent authorities of member states with an authorized CCP, and two independent members. The text also strengthens the existing system for recognizing and supervising third-country clearing houses. It introduces a "two tier" system differentiating between non-systemically important CCPs and systemically important CCPs. To be recognized and authorized to operate in the EU, the tier 2 CCPs would be subject to stricter rules, including the following:

  • Compliance with the necessary prudential requirements for EU-CCPs while taking into account third-country rules
  • Confirmation from the relevant EU central banks that the CCP complies with any additional requirements set by those central banks
  • Agreement of a CCP to provide ESMA with all relevant information and to enable on-site inspections, in addition to the necessary safeguards confirming that such arrangements are valid in the third country

On the basis of a fully reasoned assessment, ESMA would also be able to recommend that a CCP or some of its clearing services are of such substantial systemic importance that the CCP should not be recognized. EC could decide, as a measure of last resort, that CCP will need to establish itself in EU. At present, 16 CCPs are established and authorized in the EU. Additional 32 third-country CCPs have been recognized under the equivalence provisions of EMIR, allowing these CCPs to offer services in EU. Following Brexit, three CCPs based in UK will de facto become third-country CCPs. Further technical work will follow this political agreement before the European Parliament and the Council can formally adopt the final text. 

 

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Keywords: Europe, EU, Banking, Securities, CCPs, EMIR, Brexit, Tier 2 CCPs, Systemic Risk, European Parliament, European Council, ESMA, ECB, EC

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