EC mulls adoption of a time-limited equivalence decision for UK CCPs
10 July 2020 Brussels
Image: IvanMarc/shutterstock.com
The European Commission (EC) has confirmed it is once again considering the adoption of a “time-limited equivalence decision” for UK-EU central counterparties (CCPs) of derivatives in order to “address the possible risks to financial stability”.
CCPs for derivatives were identified as the only area which may present financial stability risks following an analysis conducted with the European Central Bank, the Single Resolution
Board and the European Supervisory Authorities.
In a subsequent report outlining the latest plans for EU-UK relations after the Brexit transition period ends on 31 December, the commission says the temporarily-extended equivalency would allow EU-based CCPs to develop further their capacity to clear relevant trades in the short and medium-term.
Additionally, it would allow EU clearing members to take and implement the necessary steps, including by reducing their systemic exposure to UK market infrastructures, the EC says.
The length of the equivalency period was not specified.
“In order to enhance the supervision and regulation of clearing activities that are of systemic importance for the union, the EU is currently implementing the European Market Infrastructure Regulation 2.2 Regulation,” the EC highlights.
As such, the commission notes it is adopting the implementing measures that will determine the degree of systemic risk of third-country CCPs and the necessary measures to strengthen the supervision of such CCPs, as well as the possible need for further measures to mitigate those risks.
Publication of the proposed equivalency period was welcomed by industry stakeholders, including the Association for Financial Markets in Europe (AFME).
The association’s managing director, Oliver Moullin, says it will be essential to address a very important financial stability risk, and it is important that the equivalence and recognition are in place before the end of September to ensure that UK CCPs do not have to start the process of off-boarding clients.
"We hope that progress will be made in the negotiations and completing equivalence assessments in other areas,” Moullin. “We also encourage the regulators to continue to work together to address remaining issues and minimise potential disruption at the end of the transition period.”
CCPs for derivatives were identified as the only area which may present financial stability risks following an analysis conducted with the European Central Bank, the Single Resolution
Board and the European Supervisory Authorities.
In a subsequent report outlining the latest plans for EU-UK relations after the Brexit transition period ends on 31 December, the commission says the temporarily-extended equivalency would allow EU-based CCPs to develop further their capacity to clear relevant trades in the short and medium-term.
Additionally, it would allow EU clearing members to take and implement the necessary steps, including by reducing their systemic exposure to UK market infrastructures, the EC says.
The length of the equivalency period was not specified.
“In order to enhance the supervision and regulation of clearing activities that are of systemic importance for the union, the EU is currently implementing the European Market Infrastructure Regulation 2.2 Regulation,” the EC highlights.
As such, the commission notes it is adopting the implementing measures that will determine the degree of systemic risk of third-country CCPs and the necessary measures to strengthen the supervision of such CCPs, as well as the possible need for further measures to mitigate those risks.
Publication of the proposed equivalency period was welcomed by industry stakeholders, including the Association for Financial Markets in Europe (AFME).
The association’s managing director, Oliver Moullin, says it will be essential to address a very important financial stability risk, and it is important that the equivalence and recognition are in place before the end of September to ensure that UK CCPs do not have to start the process of off-boarding clients.
"We hope that progress will be made in the negotiations and completing equivalence assessments in other areas,” Moullin. “We also encourage the regulators to continue to work together to address remaining issues and minimise potential disruption at the end of the transition period.”
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