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November 10, 2017

Yves Mersch, Member of the Executive Board of the ECB, spoke at the Cumberland Lodge Financial Services Summit in Windsor. He discussed the evolving regulatory environment for central counterparties (CCPs). EC's June 2017 proposal to amend European Market Infrastructure Regulation (EMIR) framework for the supervision and regulation of EU and third-country CCPs has been the most notable development, according to Mr. Mersch,

The strengthening of the role played by the central banks is necessary in light of two major trends of the past few years. First, since EMIR first entered into force, there has been a continued growth of central clearing and the resulting financial risk concentration in CCPs. This has significantly increased the potential disruptive effects that CCPs can have on the implementation of monetary policy. Second, the departure of UK from the EU implies that a very large part of euro-denominated clearing activities across all asset classes may be performed from outside the EU in the future. This points to the need to strengthen the EU regime for third-country CCPs and to enhance the role of the relevant central banks of issue. He explained that it is also fully justified to seek to strengthen the supervisory regime for CCPs, Taking the example of third-country CCPs, Mersch explained, "Until now, the EU's approach towards third country CCPs, including those that are of systemic importance, has been to rely entirely on the supervision carried out by home authorities. However, there are certain areas in which EU rules provide more protection than those in other jurisdictions, and in these areas the EC is right to suggest that reliance on home authorities may not be enough, and that more direct involvement by EU authorities is required."

ECB would be involved in the process to share its liquidity considerations as a monetary policy authority, but the final supervisory decision would be within the hands of the EC and the EU legislators. Mr. Mersch also focused on the issues related to financial market infrastructures (FMIs), which arise from Brexit. "The withdrawal of the UK from the EU will, needless to say, create legal uncertainty not only for CCPs but, also, for other FMIs, including payment and securities settlement systems processing euro-denominated transactions. These issues need to be carefully monitored and assessed, and solutions may need to be explored in order to ensure certainty and stability." He concluded that various legislative initiatives are crucially important in the current context and said: "We strongly welcome the intention of the legislator to give central banks of issue a role in the regulatory framework for CCPs, commensurate with their responsibilities. As I have said, this is of crucial importance, considering the fundamental impact CCPs can have on monetary policy."


Related Link: Speech (PDF)

Keywords: Europe, Banking, Securities, CCP, EMIR, ECB

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