Three days after the European Parliament (see EUROPE 11880), national experts at the Council began working on Friday 13 October on the draft legislation to strengthen supervision of centralised counterparties (clearing houses) (CCPs) located outside the EU. The financial services working group’s programme includes issues relating to recognition of CCPs.
Unveiled in June (see EUROPE 11807), the European Commission’s proposal foresees the creation of a classification system for CCPs: - tier 1 for those of less systemic risk to the European financial system, which will be able to continue to operate using the existing equivalence regime; - and tier 12 for those of greater systemic risk, which will be subject to greater surveillance and subject to stricter demands.
Among the ‘tier 2’ CCPs, if the European Securities Market Authority (ESMA) feels that the supervision and requirements are not enough to attenuate the potential results of their default, it is recommended that the Commission, by request of ESMA and in agreement with the competent central bank, may decide that the counterparty must relocate its activities to the EU, if it wishes to receive the necessary regulatory authorisations to be able to operate on the single market.
In a working document that this newsletter has seen, Estonian Presidency experts suggest a specific decision on an adjustment period during which a CCP could be temporarily recognised as well as the potential impact for financial stability in the EU or one of its member states. The document states that by setting an adjustment period, the Commission should take account of the characteristics of services offered by the CCP and their substitutability.
The Estonian document also proposes to increase ESMA’s investigative powers. While the original text says that ESMA can force a non-EU tier 2 CCP to undergo general investigations and on-site investigations, some member states are reported to have suggested that this could be extended to bodies to which CCPs outsource their work. It is also suggested, as a topic for discussion, that the relevant central banks should be able to take part in the investigations.
Finally, the presidency suggests extending the proposed validation deadlines for prudential requirements on CCPs. The text foresees that when a non-EU clearing house is considering a serious change to the models and parameters it has chosen to calculate and manage risk, then it should request validation of the change from the competent authority.
It is suggested to set at 30 days the timeline for the competent authority due to make a risk assessment of a CCP in liaison with ESMA; at 60 days (rather than there proposed 30 days) for it to submit its report to the college of national surveillance authorities; at 30 days (rather than the proposed 15) for adopting an opinion by simple majority vote at the College; and 120 days (rather than the proposed 60) for notification by the competent authority to the CCP of agreement or rejection of validation. The document says these timelines are more ‘realistic.’ (Original version in French by Marion Fontana)