Investment Operations

Deeper Regulation of Central Counterparties Agreed to by EU, Member States

Valdis Dombrovskis

The European Commission said it welcomed the political agreement reached Friday by the European Parliament and EU Member States to ensure a more robust and effective supervision of central counterparties (CCPs) offering services to the EU, saying it would contribute to preserving the financial stability in the EU.

Analysts say EU CCPs, systemic market infrastructures in the financial system, are already well regulated and subject to stringent supervision, thanks to a raft of measures adopted in the wake of the financial crisis. The agreement, they say, upgrades the supervision of CCPs, established in EU and non-EU countries, offering or planning to offer services to EU clearing members and their clients, as well as to EU trading venues. The agreed rules build on the proposal to revise the European Market Infrastructure Regulation (EMIR) presented by the European Commission in 2017 as part of the Capital Markets Union project.

Today, there are 16 CCPs in the EU, and 32 CCPs outside the EU in 15 countries, which are allowed to offer their services to EU counterparties. Since EMIR was first adopted in 2012, CCPs have become a systemically-important part of the financial sector and their importance is growing.

According to the Commission, these new arrangements are important to protect financial stability due to the growing role of CCPs as intermediaries in financial transactions. Moreover, with the departure of the United Kingdom from the EU, a significant volume of financial instruments denominated in the currencies of Member States will be cleared by CCPs in non-EU countries.

“Today’s political agreement on this important Capital Markets Union action delivers a sound framework for the supervision of EU and third-country CCPs,” said Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union. “The continued safety and stability of our financial system is a priority. As we face the departure of the largest EU financial center, the EU is protecting financial stability while remaining very open to international integration,” Dombrovskis added.

The reform of EMIR introduces a more pan-European approach to the supervision of EU CCPs. It establishes, in particular, a Supervisory Committee within the European Securities and Markets Authority (ESMA) with independent members, national supervisors and central banks. For the supervision of third-country CCPs operating in the EU, based on the system of equivalence, it introduces a proportionate approach: some CCPs established outside the EU may be of such systemic importance that they require additional conditions to mitigate the potential risks.

In such instances, ESMA obtains additional supervisory tools. If this is not sufficient, the Commission can, upon request by ESMA, decide that a CCP will only be able to provide some or all of its services in the Union if it established in the EU. The Supervisory Committee also fosters convergence in the supervision of EU CCPs through more involvement of ESMA in certain supervisory decisions.

The Commission said it also welcomed the political agreement reached today by the European Parliament and EU Member States to amend the Statute of the European System of Central Banks and of the European Central Bank, saying the amendments equip the European System of Central Banks with the powers necessary to perform the tasks set in the amended EMIR Regulation.

Further technical work is expected to follow this political agreement so that the European Parliament and the Council can formally adopt the final texts.