Stricter EU supervision of clearing houses with stronger ECB role agreed
- 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- CCP recognition may be withdrawn if systemic risk deemed too great
- ECB to gain powers to impose requirements over third-country CCPs
EP negotiators struck a deal with EU ministers to set up an ESMA supervisory committee for EU CCPs and impose stricter rules on third country ones, depending on systemic risk.
Negotiators agreed to set up a new Supervisory Committee within the European Securities and Markets Authority (ESMA) for central counterparties (CCPs). They decided that ESMA would become the EU supervisor for third-country CCPs and give opinions on key decisions of national supervisors of EU CCPs.
They also struck a deal on a separate file concerning the new ECB powers with regard to clearing systems for financial instruments.
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Danuta Maria Hübner (EPP, PL), the rapporteur, said: “The agreement reached today on two files related to the supervision of CCPs is crucial for the stability of the European financial sector in the future. We have laid today the first stone of a process that will see increased involvement of EU authorities in the supervision of those all-important financial market infrastructures.
Through an increased role of ESMA and of the ECB in the supervision of CCPs, in particular of the most significant ones, it will increase supervisory convergence within the Union. This in turn will ensure safe and resilient CCPs all across the Union and reduce national divergences”.
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.
EU-level supervision
The CCP Supervisory Committee within ESMA will be composed of independent experts, members of national supervisory authorities and chaired by an independent chairperson. The Chair and the independent members of the CCP Supervisory Committee should be accountable to the European Parliament and to the Council. Following an open selection procedure, the European Parliament should be entitled after having heard the persons selected, to validate their designation.
Central banks of issue of currencies for financial instruments handled by a CCP will also be more extensively involved in assessing CCPs’ resilience and the risk they pose to a national currency.
ESMA will finally gain more possibilities to ensure common CCP supervision culture and practices across the Union.
Proportionate treatment, depending on risk
Systemically-important third country CCPs will be classified according to systemic risk they present to the financial stability of the EU or one or more member states.
The European Commission will 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.
Possible “relocation” of third country CCPs
The recognition of third country CCPs and their classification should be systematically reviewed (at least every 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 third-country 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 prohibits it from being recognised.
The withdrawal of the recognition could be limited to a particular clearing service, activity or class of financial instruments.
The supervisory fees paid by the third country CCPs to ESMA should be proportionate to the turnover of the CCP concerned.
ECB role
The ECB Statute is also revised to ensure that it can fulfil the new tasks conferred upon central banks of issue, namely to adopt in extraordinary situations temporary requirements on third-country CCPs. The ECB does however not gain new powers over EU CCPs, for which the national central banks of the ESCB already have sufficient powers.
Next steps
The informally agreed text will have to be confirmed by a plenary vote before the end of the current legislature.