EU and US adopt CCP equivalence
16 March 2016 Brussels
Image: Shutterstock
The European Commission has formally acknowledged US central counterparty (CCP) regulation as equivalent to the EU.
The belated agreement follows three years of negotiations between the European Commission and the US Commodity Futures Trading Commission (CFTC) that led to the 10 February announcement by commissioner Jonathan Hill and CFTC chairman Timothy Massad that a common approach for transatlantic CCPs had been provisionally agreed.
Commissioner Hill, responsible for financial stability, financial services and capital markets union, said: “This is an important step forward for global regulatory convergence and implementing our agreement with the CFTC.”
“It means that US CCPs, once recognised by European Securities and Markets Authority (ESMA), can continue to provide services to EU companies. We look forward to the CFTC's forthcoming decision on substituted compliance which will allow European CCPs to do business in the US more easily.”
A CCP’s EU equivalency assessment will begin when a third country seeks recognition from ESMA.
The third-country authority must be able to show that its rules achieve the same objectives as in the EU, although the European Commission stressed that an identical framework is not necessary.
Most notably, equivalency means that EU banks' exposures to US CCPs will be subject to a lower risk weight in calculating their regulatory capital.
This decision will ensure that both EU and US CCPs operate to the same standards and at a comparable level of cost to their participants, according to the European Commision.
It alleviates the regulatory burden for US and EU CCPs, allowing compliance with only one set of rules. The aim of this is to encourage market certainty and cross-border activity, while avoiding fragmentation of markets and liquidity.
These decisions follow previous determinations of equivalence made in October 2014 for Australia, Singapore, Japan, Hong Kong, Canada, Switzerland, South Africa, Mexico and South Korea.
The belated agreement follows three years of negotiations between the European Commission and the US Commodity Futures Trading Commission (CFTC) that led to the 10 February announcement by commissioner Jonathan Hill and CFTC chairman Timothy Massad that a common approach for transatlantic CCPs had been provisionally agreed.
Commissioner Hill, responsible for financial stability, financial services and capital markets union, said: “This is an important step forward for global regulatory convergence and implementing our agreement with the CFTC.”
“It means that US CCPs, once recognised by European Securities and Markets Authority (ESMA), can continue to provide services to EU companies. We look forward to the CFTC's forthcoming decision on substituted compliance which will allow European CCPs to do business in the US more easily.”
A CCP’s EU equivalency assessment will begin when a third country seeks recognition from ESMA.
The third-country authority must be able to show that its rules achieve the same objectives as in the EU, although the European Commission stressed that an identical framework is not necessary.
Most notably, equivalency means that EU banks' exposures to US CCPs will be subject to a lower risk weight in calculating their regulatory capital.
This decision will ensure that both EU and US CCPs operate to the same standards and at a comparable level of cost to their participants, according to the European Commision.
It alleviates the regulatory burden for US and EU CCPs, allowing compliance with only one set of rules. The aim of this is to encourage market certainty and cross-border activity, while avoiding fragmentation of markets and liquidity.
These decisions follow previous determinations of equivalence made in October 2014 for Australia, Singapore, Japan, Hong Kong, Canada, Switzerland, South Africa, Mexico and South Korea.
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