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    EC Deems Chinese CCPs as Equivalent, Looks at SME Lending Approach

    June 28, 2022

    The European Commission (EC) published text for the Implementing Decision on the equivalence of the regulatory framework of the People's Republic of China for central counterparties (CCPs) that are authorized to clear over-the-counter (OTC) derivatives in the interbank market. Additionally, EC published a report on the small and medium enterprises (SMEs) referral scheme under the Capital Markets Union Action Plan.

    Implementing Decision on equivalence. The procedure for recognition of central counterparties (CCPs) established in third countries set out in Article 25 of European Market Infrastructure Regulation (EMIR) aims to allow CCPs, established and authorized in third countries whose regulatory standards are equivalent to those laid down in EMIR, to provide clearing services to clearing members or trading venues established in the European Union. For a third-country legal regime to be considered equivalent to the legal regime of the European Union in respect of CCPs, the substantial outcome of the applicable legal and supervisory arrangements of such regime is to be equivalent to the European Union requirements in respect of the regulatory objectives those requirements achieve. This Decision covers the regulatory and supervisory regime applicable to CCPs that are authorized by People's Bank of China (PBC) to clear OTC derivatives in the interbank market. PBC is responsible for authorizing and supervising CCPs providing central clearing of OTC derivatives transactions on the Chinese interbank markets. The Decision lays down that the legal and supervisory arrangements of the People's Republic of China that are applicable to CCPs authorized by PBC to clear OTC derivatives in the interbank market are to be considered equivalent to requirements laid down in EMIR. This Decision shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

    Report on SME referral scheme. In the Capital Markets Union Action Plan which was published in September 2020, EC committed to analyzing the merits and feasibility of setting up a referral scheme to require banks (and other providers of funding) to direct SMEs to alternative providers of funding in case they turn down their funding application. The aim of such a scheme would be to facilitate SMEs’ access to a wider set of funding options. This recent report presents the outcome of this analysis and sets out the perceived problems, current rules and their limitations, and the objectives of the scheme. The report provides a background on SME funding and rejected loan applications before analyzing the merits of a number of possible solutions to the identified problems. It also considers a number of ongoing developments that might impact the feasibility of a referral scheme in the future and that might thus warrant an update of the analysis. The report presents three alternative approaches to setting up an SME referral scheme, while analyzing the practical feasibility of each approach. Nevertheless, the assessment concludes that a referral scheme that would build on the European Single Access Point (ESAP) proposal would be the most promising avenue. However, EC will wait for the outcome of the ESAP negotiations before considering the next steps regarding this.

     

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    Keywords: Europe, EU, Banking, Securities, Equivalence Decisions, Basel, Lending, Credit Risk, CCP, OTC Derivatives, SME, EMIR, SME Referral Scheme, Capital Markets Union, ESAP, EC

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