• New Supervisory Committee within ESMA to supervise all CCPs in the EU
  • Treatment of third country CCPs to depend on systemic risk
  • CCP recognition may be withdrawn if systemic risk deemed too great

MEPs backed plans to set up an ESMA supervisory committee for EU CCPs and impose stricter rules on third country ones, depending on systemic risk.

Plans to set up a new Supervisory Committee within European Securities and Markets Authority (ESMA) for central counterparties (CCPs) were approved by the Economic and Monetary Affairs Committee on Wednesday.

CCPs, which sit between buyers and sellers of stock, bonds or derivatives and shoulder the risks of a transaction party default, have become systemically important in recent years, due to the growing value and volume of the transactions that they handle.  

Both EU CCPs and the third country ones supplying services in the EU should be subject to more EU-level supervision, MEPs agreed.

EU-level supervision

MEPs proposed that the CCP Supervisory Committee within ESMA be composed of experts and chaired by an independent chairperson. Its decisions would be approved by the ESMA Board of Supervisors where they relate to the most important areas of CCP supervision and subject to the non-objection of the Board of Supervisors in all other cases.

Under the new rules, national authorities would keep their current supervisory responsibilities, but in order to promote EU-wide consistency they would have to consult ESMA or obtain its prior consent, depending on the type of decision.

Central banks of issue of instruments handled by a CCP should also be more extensively involved in assessing CCPs’ resilience and the risk they pose to a national currency, said MEPs

The supervisory fees paid to ESMA should be proportionate to the turnover of the CCP concerned, they added.

Proportionate treatment, depending on risk

MEPs backed an EU Commission plan to classify third country CCPs according to systemic risk they present to the financial stability of the EU or one or more member states.

They asked the Commission to specify objective and transparent risk assessment criteria, such as the nature and complexity of the transactions cleared by the CCP, as well as the transparency and liquidity of markets concerned and the degree to which the CCP’s clearing activities are denominated in euro or another Union currency.

ESMA should be able to re-classify a CCP from Tier 1 (not systematically important) to

Tier 2 (systematically important for the financial stability of the EU of one or more member states) or vice versa, said the committee

Third country CCPs

MEPs agreed that the recognition of third country CCPs and their classification should be systematically reviewed (every two to five years) depending on the size, complexity and the extent to which the financial instruments cleared by the CCP are denominated in Union currencies.

Under the new rules, ESMA, in agreement with the central banks of issue, may conclude that a CCP is of such substantial systemic importance that even compliance with the rules does not sufficiently ensure the financial stability of the EU or a member state and therefore recommend that the Commission prohibit it from being recognised.

 

ESMA could also restrict the withdrawal of the recognition to a particular service, activity or class of financial instruments.

 

Quote

Danuta Maria Hübner (EPP, PL), the rapporteur, said: “It is time for a change in the supervision of CCPs. We have to strengthen ESMA as a supervisor for EU CCPs, which will bring more supervisory convergence and a more European approach into the system. We also need to monitor better the potential risk posed to the Union by systemically significant third country CCPs. We have to work together with third country supervisors to create trust and the right conditions for good and effective cooperation. These are the main goals that my report intends to achieve. The Parliament is now hoping that the Council will join us by adopting swiftly its general approach and that we can start the inter-institutional negotiations soon. 

Roberto Gualtieri (IT, S&D), the ECON Chair, said: “With today’s vote the EP sends a strong and clear message. There is a broad majority (88%) supporting a balanced text which maintains the scope of the Commission’s Proposal and define a strong framework for authorisation of EU CCPs and recognition for third country CCPs.

This is the first case of adoption by the ECON of a reviewed and improved equivalence mechanism which shows how this is the appropriate tool for dealing with third countries in the financial services, and in particular with the consequences of Brexit. 

We urge the Council to reach a general approach on the whole regulation in order to start trilogues as soon as possible.”

Next steps

The draft rules were approved by 45 votes to 4 with 5 abstentions. Three-way negotiations between the Parliament, the Council and the Commission on the final shape rules will follow, once the member states agree their common stance.