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03 December 2018

Capital markets union: Council agrees stance on supervision framework for clearing houses

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EU member states reached a compromise position on how EU and third country clearing houses should be supervised in the future, taking in particular account of the effects of Brexit on the European financial system.

EU ambassadors endorsed the Council's negotiating mandate for future talks with the European Parliament on a revision of the European market infrastructure regulation (EMIR) as well as a decision revising the statute of the European system of central banks and the European Central Bank. They asked the presidency to start trilogue negotiations.

“The capital markets union needs to be based on solid rules and a reliable European supervision framework. Today's agreement recognises the key role of clearing houses in ensuring the efficiency of the markets, as well as the systemic impact that some of them can have on EU financial stability,” said Hartwig Löger, minister for finance of Austria which currently holds the Council presidency.

Clearing houses or central counterparties (CCPs) facilitate the exchange of payments, securities and derivative transactions by centralising and standardising all the steps leading up to the payment. They also take on counterparty risk by stepping in between the seller and the buyer, thereby providing guarantees that the transaction can be completed.

There are currently 16 CCPs established and authorised in the EU. An additional 32 third-country CCPs have been recognised under EMIR's equivalence provisions, allowing them to offer their services in the EU. Following Brexit, the three CCPs based in the UK will de facto become third-country CCPs.

The Commission proposal, published in June 2017, aims at strengthening the supervision of CCPs in order to take into account the growing size, complexity and cross-border dimension of clearing in Europe. It introduces a unique mechanism within the European Securities and Markets Authority to bring together expertise in the field of CCP supervision and ensure closer cooperation between supervisory authorities and central banks responsible for EU currency.

In particular, the Council text establishes a "CCP supervisory committee" within ESMA composed of a Chair and competent authorities of member states with an authorised CCP. Central banks of countries whose currency is used for the transaction can participate in the committee on certain specific matters but do not have a voting right. The CCP supervisory committee can meet in two configurations: one for the supervision of CCPs based in the EU, the other for the supervision of third-country CCPs.

The text also strengthens the existing system for recognising and supervising third country clearing houses. In particular, it introduces a "two tier" system differentiating between non-systemically important CCPs and systemically important CCPs (so-called "Tier 2" CCPs). ESMA would assess the systemic importance of CCPs according to specific criteria, among which the nature, size and complexity of the CCP's business, its membership structure or the availability of alternative clearing services in the currency concerned.

Tier 2 CCPs would be subject to stricter rules in order for them to be recognised and authorised to operate in the EU, including:

  • compliance with the necessary prudential requirements for EU-CCPs while taking into account third-country rules;
  • confirmation from the relevant EU central banks that the CCP complies with any additional requirements set by those central banks;
  • the agreement of a CCP to provide ESMA with all relevant information and to enable on-site inspections, as well as the necessary safeguards confirming that such arrangements are valid in the third country.

As a measure of last resort and on the basis of a fully reasoned assessment, ESMA would also be able to conclude that a CCP or some of its clearing services are of such substantial systemic importance that the CCP should not be recognised. The third country CCP would then need to establish itself in the EU in order to be able to operate.

Full press release

© European Council

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