24 March 2021

CCP Supervisory Committee Chair delivers keynote speech at the Derivatives Forum Frankfurt 2021

Supervisory convergence aims to ensure that the requirements in EMIR are applied comprehensively and consistently to EU CCPs and that the supervisory activities of national competent authorities are fully aligned when mitigating risks for financial stability.

The Chair of ESMA’s CCP Supervisory Committee yesterday delivered a keynote speech on evolving risks and supervisory responses for CCPs.

I would like to thank the host for inviting me to speak about the evolving risks in the domain of central clearing services. This also provides me an opportunity to share with you how ESMA and the relevant supervisory national authorities in the European Union are coordinating their efforts to respond to the evolving clearing landscape.

1. ESMA’s CCP Supervisory Committee

As a starting point, allow me to spend a few words on the establishment of the CCP Supervisory Committee at ESMA which started operating in 2020.
The establishment of the CCP Supervisory Committee represents the most tangible EU regulatory response to the need to enhance the supervisory framework for CCPs serving the European financial markets.
As you will know, the Supervisory Committee is composed of representatives from national competent authorities responsible for the supervision of EU CCPs, as well as from those central banks issuing Union currencies referenced by financial instruments cleared by authorised or recognised CCPs. It also encompasses two independent members appointed by ESMA: Ms Nicoletta Giusto, Ms Froukelien Wendt; as well myself, acting as Chair of the committee....

Under this new set up, ESMA is given a pivotal role in the overall EU regulatory and supervisory framework for CCPs. In order to perform its increased role, a key strategic objective is to further enhance ESMA’s analytical capacity and market intelligence, inter alia by leveraging on closer cooperation with competent authorities and central banks, regular industry outreaches on topical issues - like the very successful recent workshop on “CCP Margins and Procyclicality”, as well as increased active engagement in international regulatory work of relevance to CCPs...

Supervisory convergence

Supervisory convergence aims to ensure that the requirements in EMIR are applied comprehensively and consistently to EU CCPs and that the supervisory activities of national competent authorities are fully aligned when mitigating risks for financial stability.
The recent review of EMIR has significantly enhanced the toolkit for supervisory convergence. Besides discussing and opining on relevant supervisory decisions and establishing common practices across the EU in the CCP Supervisory Committee, there are two key tools for enhanced supervisory convergence: peer reviews and CCP stress tests...

2. Evolving risks in the domain of CCPs

Allow me to focus the second part of my speech on some major risks emerging in the domain of CCPs in connection with recent market and environmental developments. In particular, I would like to touch on unaccomplished structural changes implied by Brexit, as well as certain risks emphasised by the Covid-19 pandemic and conclude with some reflections on environmental risk and interdependencies.
Post-Brexit changes
Starting with the post-Brexit changes, while the temporary recognition of the UK CCPs has allowed for a smooth transition from the previous EU CCP regime to the new third-country regime, at the same time Brexit resulted in two major CCPs of systemic importance for the Union to operate from outside its jurisdiction. From an EU perspective, as I already noted on another occasion, in the clearing space, we may have not yet seen the full implications of Brexit. Whereas in the trading sector, we witnessed the relocation of quite some trading activities from the UK into the EU or elsewhere; in the clearing domain, there have been less pronounced developments, certainly aided by the temporary recognition of UK CCPs.
The Supervisory Committee is tasked to carefully analyse potential risks, dependencies and stability implications that result from the current situation and its potential evolution. It will also consider the effect of initiatives to continue building the Capital Market Union which may further incentivise clearing with EU CCPs. Moreover, in accordance with its mandate, by mid-2022, the Supervisory Committee will assess whether the services provided by the two Tier 2 CCPs, or some of them, are of a systemic nature that is too substantial to be safely provided from abroad. To this end, ESMA is currently defining a methodological framework for the assessment of the relevant systemic risks and supervisory implications, also taking into account the costs and benefits that may result from a potential relocation of clearing services. In conducting this assessment, the committee will collect and consider a wide range of quantitative and qualitative information, engage with all relevant stakeholders, and consult relevant authorities. I am looking forward to such engagements with many of you in the course of this year. The final goal is to propose a sound and objective decision on this matter in the interest of the financial stability of the EU, its member states and market participants, followed by consequent implementation measures...

keynote speech

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