19 April 2017

Benoît Cœuré: Central clearing: reaping the benefits, controlling the risks

Conclusion

The recent review of CCP resilience, recovery and resolution under the CCP work plan has confirmed that the safeguards established by the PFMI and the Key Attributes for Effective Resolution of Financial Institutions are adequate. Additional guidance on the application of these requirements will promote further rigour and consistency in CCPs’ approaches as well as enhanced cooperation between authorities. The main priority at this juncture is to finalise that guidance and to then ensure its full and timely implementation. In this context, one important priority is to ensure a sufficient level of granularity in the approaches of both CCPs and the relevant authorities. The respective global rules are minimum requirements only. Enhanced CCP in-house stress-testing as well as progress in supervisory stress-testing should be used to assess more closely if and to what extent some CCPs, depending on their specific risk profile, may need to move beyond that. In the medium term, it is worthwhile considering an approach that would combine standardised minimum requirements with entity-specific ones based on a supervisory review process, including supervisory stress-testing. Greater granularity of CCP supervision and oversight will also help to better calibrate CCPs’ defences for potential recovery or resolution scenarios. Authorities should step up their efforts to enhance cooperation with regard to major cross-border CCPs and should ensure that the frequency and depth of cooperation is in line with the systemic risk implications of CCPs. Cooperation should also reflect the significant overlaps and interactions between potential default management, recovery and resolution scenarios and ensure that a core group of authorities from the most affected jurisdictions will be able to assess a CCP’s defences throughout its potential lifecycle in a consistent and coherent manner. In addition, cooperation between authorities in charge of CCP supervision and oversight on the one hand, and resolution on the other, should ensure the consistency of recovery and resolution plans, the alignment of stakeholder incentives down the recovery waterfall and beyond, and the effective application of the “no creditor worse-off” principle. Finally, authorities should work to further enhance the robustness not only of individual CCPs, but of the central clearing landscape as a whole. To this end, it would seem useful to move in the medium term towards a structured framework for the ongoing monitoring of central clearing interdependencies and multi-CCP stress testing. In addition, potential cross-sectoral spillover effects of CCP and banking rules should be carefully assessed when considering prudential changes.

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