Mairead McGuinness, EU Commissioner responsible for financial services, financial stability and Capital Markets Union said, “Today's
decision gives us a bit more breathing space while we continue to work
on equivalence decisions. It also gives EU banks and investment firms
sufficient time to properly prepare for the possibility of higher
capital charges. There will be no more extensions after today's one.”
This is the last and final extension possible under the Capital
Requirements Regulation (‘CRR'). Exposures to those non-EU CCPs which
will not be recognised by ESMA by 28 June 2022 will no longer be
eligible for lower capital requirements after that date. Stakeholders
should start preparing for this possibility.
Background
CCPs operate between the counterparties of a derivatives contract.
When a contract is centrally cleared, the CCP steps in and takes the
place of the buyer to the seller, and the seller to the buyer. Following
the financial crisis, their use was encouraged by the G20, as central
clearing reduces risks in derivatives trading, notably the risk of
contagion in case a counterparty defaults.
Under the CRR, EU CCPs and non-EU CCPs recognised by ESMA are
considered to be ‘Qualifying CCPs' (‘QCCPs'). EU banks and investment
firms are subject to a significantly lower capital requirement for
exposures to QCCPs compared to exposures to non-QCCPs.
At this time, a transitional regime under the CRR allows EU banks and
investment firms to consider any non-EU CCP that has applied for
recognition by ESMA as a QCCP during the recognition process. CCPs in
Argentina, Chile, China, Colombia, Indonesia, Israel, Malaysia, Russia,
Taiwan, Thailand and Turkey and the United States of America currently
benefit from that transitional regime. Those CCPs have not been
recognised by ESMA as the Commission has not adopted equivalence
decisions for their home jurisdictions, or adopted such a decision only
recently.
In the meantime, the Commission will continue its work on equivalence
assessments. Nevertheless, the outcome of those assessments cannot be
predicted and for various reasons there is no guarantee that the
Commission will adopt equivalence decisions for all of these
jurisdictions. An equivalence decision by the Commission is a
prerequisite for ESMA to recognise a non-EU CCP. It is therefore
possible that these non-EU CCPs, or some of them, will not be recognised
by ESMA to provide clearing services in the EU.
For More Information
Background on CCP equivalence decisions