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I believe that EMIR is an example of successful financial reform in the EU for three main reasons:
First, EMIR is in the legal form of a Regulation which means it applies directly in all Member States without national discretions or different transpositions. This is especially relevant in the area of OTC derivatives where small differences in requirements can affect where business is conducted;
Secondly, a significant number of the more detailed rules, which underpin EMIR, were defined through what we call ‘Technical Standards’, drafted by ESMA. This approach allows technical experts to focus on preparing well-calibrated, detailed rules and again, I would stress the importance of details in OTC derivatives rules and getting them right, because they determine the costs of transactions and ultimately, where business is conducted. Equally like Regulations, Technical Standards are legal instruments which apply directly to each EU Member State but have the advantage that the process to amend them is quicker when we identify that something needs changing;
Thirdly, EMIR provides us with a gateway to strengthening supervisory convergence, that is consistency of supervision across the EU, a topic I will return to later in my speech.
We cannot yet assess the full impact of EMIR given its relative newness and that some core elements, such as the classes of derivatives that are subject to the clearing obligation, are very recent, but I think it is the right time to take stock of what has been accomplished and what can still be improved.
CCPs represent one of ESMA’s priorities in terms of supervisory convergence. These market infrastructures have been given a starring role in the future management of systemic risks and financial stability. Therefore, it is imperative that they are supervised in a robust and coherent way across the EU. To illustrate what ESMA is doing here, let me mention in particular three activities that are central to our supervisory convergence work for CCPs: our annual stress test exercise of CCPs, our annual peer review of CCP supervisory practices and validations of changes to risk models and parameters, and our active coordination role across colleges, which has led to the development of guidelines, common processes, opinions and a number of Q&As.
Our first EU-wide CCPs stress test, conducted last year, gathered a lot of attention in the EU and beyond. We consider it a fundamental piece of work in the wider objective of ensuring a resilient CCP market place. Building on the experience gained from this first exercise, ESMA is currently running its second set of stress tests, through a renewed and thorough framework.
The second activity that has proved to be a very powerful tool in promoting supervisory convergence of CCPs is the annual peer review where we assess national regulators’ supervisory practices. ESMA has conducted two to date and is initiating work for its third one. The peer review exercise has been valuable in both identifying best practices and areas of improvements, which in turn has triggered further work for ESMA to address these, through recommendations or opinions for example.