European Association of CCP Clearing Houses
The proposed guidelines include as a potential source of conflicts of interest the relationship between clearing members, clients or between a clearing member and a client, which should be considered by the CCP. EACH has strong concerns about the requirement to address/consider potential conflicts of interest between these parties in the CCPs conflicts of interest management, in particular as a CCP would not necessarily be aware of the identity of the clients of its clearing members. A CCP cannot therefore be aware of all conflicting interests within its customer base and, more importantly, has no legal basis for managing conflicts of interest within the customer base and/or enforcing mitigating measures at that level.
EACH has also strong concerns that the definition of ‘relevant persons’ for a CCP in the proposed guidelines is too extensive. In particular, the proposed guidelines include in the definition of a relevant person ‘staff and close family relationships as […] relatives by blood or marriage up to the second degree, […]’, which should be considered by the CCP. By contrast, the requirements of Directive 2014/65 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU MiFID II), for example, are less restrictive. It appears also that the term ’relevant person’ in Art 33 Commission Delegated Regulation 2017/565 concerning conflicts of interest potentially detrimental to a client is covering only family relationship up to the first degree. Therefore, it would propose to replace in Article 12 the part of the definition of a relevant person by ‘staff and close family relationships as […] relatives by blood or marriage up to the first degree, […]’.
Moreover, the definition of ‘staff’ should be aligned with Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMI’), distinguishing between ‘board’, ‘senior management’, ‘chief officers’ and ‘employees’.
Regarding the limitation of the number of contracts or mandates board members and executive directors may have, EACH would suggest clarifying the rules by including specific limitations.
EACH recommends that the limitation remains proportionate. It is in the interest of a CCP to have board members that allow representation on a group board level or in other subsidiaries, taking rules of conduct into account. As CCPs are often part of a bigger corporate group, group mandates are common and have proven to work effectively, including with possible conflicts of interest being appropriately managed. A very strict and quantitative limitation would impair the ability of a CCP to attract highly-qualified and experienced managers and board members from group level. This could be problematic, taking into account that some CCPs are active in niche markets where specific expertise and deep knowledge is highly necessary. In addition, there may be instances where a representation at the level of the group board is helpful for steering a service provider. In the event of a possible conflict of interest, the respective board member or employee would be excluded or refused from negotiations or decision-making or voting processes in accordance with accepted market practices and general conflicts of interests laws.
Full EACH response
Eurex Clearing’s conflicts of interest management is based on the requirements in Article 33 of EMIR as well as relevant additional requirements (e.g. derived from the German Stock Corporation Act or the Banking Act). Therefore, it is very important that the Guidelines on CCP conflicts of interest management do not conflict with already existing rules and allow a risk-based approach, consistent with existing rules for credit institutions.
Eurex Clearing agrees with the definition and scope of conflicts of interest to the extent that these conflicts are affecting the interests of the CCP and therefore, are manageable by the CCP. Conflicts of interest that do not affect interests of the CCP should be excluded from the scope.
In particular, the guidelines include the relationship between clearing members, clients or between a clearing member and a client as a potential source of conflicts of interest, which should be considered by the CCP. It has strong concerns to address / consider potential conflicts of interest between these parties in the CCPs conflicts of interest management, especially if they are not associated with the business of the CCP. In accordance with current EMIR requirements, clients can either be disclosed or undisclosed to the CCP. Undisclosed clients are only known to their clearing member. Hence, a CCP cannot be aware of all conflicting interests between a clearing member and the undisclosed clients. Furthermore, undisclosed clients could influence interests of the clearing member, which then would not be transparent to the CCP.
Eurex Clearing considers the proposed rules of conduct as appropriate, but recommends to consider already existing requirements.
Regarding the rules related to the limitation of the number of contracts or mandates board members and executive directors may have, it proposes to clarify the rules by including specifications on the required limitations. These limitations should not conflict with currently existing rules for credit institutions, which already determine specific qualitative requirements as well as concrete limitations of the number of mandates for management bodies (i.a. Article 91 (3) in Directive 2013/36/EU).
For potential conflicts of interest with external auditors, there are already sufficient requirements in Regulation (EU) No 537/2014 and transpositions into national law in place. These requirements specify forbidden activities that are conflicting with their activities as the external auditor. In order to prevent misinterpretations of the term “external audits having a link with or receiving benefit from the CCP” it proposes adding a reference to the existing rules or deleting this specific requirement.
Full Eurlex Clearing response
London Stock Exchange Group
Scope of the guidance: LSEG believes certain aspects of the guidelines would benefit from further clarification. For example, it should be clear that some situations are outside the CCP’s control, in particular the conflicts of interest arising between a clearing member and its clients. Concerning conflicts of interests between a CCP and its interoperable CCP, the guidelines should clarify what is expected from the CCP in a more granular way.
CCPs belonging to a group: LSEG welcomes the definition of measures to cover the specific case of CCPs belonging to a group. However, these measures should be carefully calibrated to balance the need to achieve coordination in a group structure with the principle of independence of the CCP with respect to the other entities belonging to the group.
Consistency with member states’ national laws: LSEG notes that care will be needed to ensure that the provisions in the guidelines are aligned with the legal framework in the various member states (e.g. the Italian Civil Code concerning organisational requirements, or requirements in France applying to whistle-blowing). This approach would avoid duplicative or potentially conflicting requirements.
Objective orientated: LSEG would suggest being less prescriptive on some aspects of the guidance.There are several instances where the objectives pursued by the guidance could be fulfilled in a different, less prescriptive way (e.g. number of contracts and mandates by board
members, rules concerning the ownership of financial instruments, and rules concerning gifts).
Full LSEG response
Clearing participants support robust rules for managing conflicts of interest in the context of CCPs. ISDA notes that these guidelines see conflicts as the result of the breach of rules by stakeholders that need to be controlled and sanctioned. In the context of banking institutions however, front line staff is routinely confronted with (potential) conflicts of interest, for instance between executing orders by two different clients in the illiquid same security. Banks have established their own rules and procedures to identify and manage such conflicts of interest. In the environment of CCPs such dynamic conflicts may arise for instance in the process of default management (DMP), when CCP personnel or seconded clearing member staff have to balance the allocation of a defaulting clearing member’s initial margin against the position of the remaining, non‐defaulting, clearing members.
Protecting confidential information is paramount. Clearing participants often experience however that confidentiality considerations are used as a reason for CCPs to restrict transparency. As a general principle, clearing participants’ information about size, composition, risk of their portfolio and trading activities needs to be protected at all time.
However, as long as the above information is properly protected, outside the default management process confidentiality should not be used as a reason to restrict disclosure of relevant information to market participants, as long as the information is aggregated to an extent such that no individual portfolios, transactions or risk profiles can be deduced or identified.
Full ISDA response
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