Changes from plenary report to adopted text

RemovedDRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

AddedTEXTS ADOPTED

Removedon the proposal for a regulation of the European Parliament and of the Council amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets

AddedP9_TA(2024)0348

Removed(COM(2022)0697 – C90412/2022 – 2022/0403(COD))

AddedMeasures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets

AddedCommittee on Economic and Monetary Affairs

AddedPE749.908

AddedEuropean Parliament legislative resolution of 24 April 2024 on the proposal for a regulation of the European Parliament and of the Council amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets (COM(2022)0697 – C9-0412/2022 – 2022/0403(COD))

▸5 unchanged paragraphs

(Ordinary legislative procedure: first reading)

The European Parliament,

– having regard to the Commission proposal to Parliament and the Council (COM(2022)0697),

– having regard to Article 294(2) and Article 114 of the Treaty on the Functioning of the European Union, pursuant to which the Commission submitted the proposal to Parliament (C90412/2022),

– having regard to Article 294(3) of the Treaty on the Functioning of the European Union,

Added– having regard to the opinion of the European Central Bank of 26 April 2023,

Added– having regard to the opinion of the European Economic and Social Committee of 22 March 2023,

Added– having regard to the provisional agreement approved by the committee responsible under Rule 74(4) of its Rules of Procedure and the undertaking given by the Council representative by letter of 14 February 2024 to approve Parliament’s position, in accordance with Article 294(4) of the Treaty on the Functioning of the European Union,

▸5 unchanged paragraphs

– having regard to Rule 59 of its Rules of Procedure,

– having regard to the report of the Committee on Economic and Monetary Affairs (A9-0398/2023),

1. Adopts its position at first reading hereinafter set out;

2. Calls on the Commission to refer the matter to Parliament again if it replaces, substantially amends or intends to substantially amend its proposal;

3. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Change 1

RemovedAMENDMENTS BY THE EUROPEAN PARLIAMENT*

AddedP9_TC1-COD(2022)0403

Removedto the Commission proposal

AddedPosition of the European Parliament adopted at first reading on 24 April 2024 with a view to the adoption of Regulation (EU) 2024/… of the European Parliament and of the Council amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets

Removed---------------------------------------------------------

Added(As an agreement was reached between Parliament and Council, Parliament's position corresponds to the final legislative act, Regulation (EU) 2024/2987.)

Removed2022/0403 (COD)

RemovedProposal for a

RemovedREGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

Removedamending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets

Removed(Text with EEA relevance)

RemovedTHE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

RemovedHaving regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

RemovedHaving regard to the proposal from the European Commission,

RemovedAfter transmission of the draft legislative act to the national parliaments,

RemovedHaving regard to the opinion of the European Central Bank,

RemovedHaving regard to the opinion of the European Economic and Social Committee,

RemovedActing in accordance with the ordinary legislative procedure,

RemovedWhereas:

Removed(1) Regulation (EU) No 648/2012 of the European Parliament and of the Council contributes to the reduction of systemic risk by increasing the transparency of over-the-counter (OTC) derivatives market and by reducing the counterparty credit and operational risks associated with OTC derivatives.

Removed(2) Post-trade infrastructures are a fundamental aspect of the Capital Markets Union and are responsible for a range of post-trade processes, including clearing. An efficient and competitive clearing system in the Union is essential for the functioning of Union capital markets and is a cornerstone of the Union’s financial stability. It is therefore necessary to lay down further rules to improve the efficiency and competitiveness of clearing services in the Union in general, and of central counterparties (CCPs) in particular, by streamlining procedures, especially for the provision of additional services or activities and for changing CCPs’ risk models, by increasing liquidity, by encouraging clearing at Union CCPs, by modernising the framework under which CCPs operate, and by providing the necessary flexibility to CCPs and other financial actors to compete within the single market.

Removed(3) It is essential for the clearing system to benefit from more clearing options and alternatives in order to ensure that banks and the real economy have continuous access to safe and efficient clearing solutions. The Union needs to make a significant contribution by developing and offering safe, efficient and innovative clearing infrastructures. The evolution of clearing markets brings with it new product offerings, risk profiles and approaches to risk management. That requires supervisory and regulatory approaches to be adapted and regulators and the industry to work closely together. To attract business, CCPs must be safe and resilient. Regulation (EU) No 648/2012 lays down measures to increase the transparency of derivatives markets and mitigate risks through clearing and the exchange of margin. In that respect, CCPs play an important role in mitigating financial risks. Rules should therefore be laid down to further enhance the stability of Union CCPs, notably by amending certain aspects of the regulatory framework. In addition, and in recognition of Union CCPs’ role in preserving the Union’s financial stability, it is necessary to strengthen further their supervision, with particular attention to their role within the broader financial system and the fact they provide services across borders.

Removed(4) Central clearing is a global business and Union market participants are active internationally. However, since the Commission adopted the proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs in 2017, concerns have been expressed repeatedly, including by the European Securities and Markets Authority (ESMA), about the ongoing risks to the Union financial stability arising from the excessive concentration of clearing in some third-country CCPs, in particular due to the potential risks that can arise in a stress scenario. In the short-term, to mitigate the risk of cliff edge effects related to the withdrawal of the UK from the Union due to an abrupt disruption of Union market participants’ access to UK CCPs, the Commission adopted a series of equivalence decisions to maintain access to UK CCPs. However, the Commission called on Union market participants to reduce their excessive exposures to systemic CCPs outside the Union in the medium term. The Commission reiterated that call in its communication “The European economic and financial system: fostering openness, strength and resilience” in January 2021. The risks and effects of excessive exposures to systemic CCPs outside the Union were considered in the report published by ESMA in December 2021 following an assessment conducted in accordance with Article 25(2c) of Regulation (EU) No 648/2012. That report concluded that some services provided by those systemically important UK CCPs were of such substantial systemic importance that the current arrangements under Regulation (EU) No 648/2012 were insufficient to manage the risks to the Union financial stability. To mitigate the potential financial stability risks to the Union due to the continued excessive reliance on systemic third-country CCPs, but also to enhance the proportionality of measures for those third-country CCPs that present less risks for the financial stability of the Union, it is necessary to further tailor the framework introduced by Regulation (EU) 2019/2099 to the risks presented by different third-country CCPs. At the same time, it is necessary that the changes be well calibrated, in light of the potential impact of regulatory measures on the competitiveness of the Union's market participants.

Removed(5) Article 4(2) and Article 11(5) to (10) of Regulation (EU) No 648/2012 exempt intragroup transactions from the clearing obligation and the margin requirements. To provide more legal certainty and predictability concerning the framework for intragroup transactions, the equivalence decisions in Article 13 of that Regulation should be replaced by a simpler framework. Article 3 of that Regulation should therefore be amended to replace the need for an equivalence decision with a list of third countries for which an exemption should not be granted. Consequently, Article 13 of that Regulation should be deleted. Since Article 382 of Regulation (EU) No 575/2013 of the European Parliament and of the Council refers to intragroup transactions as provided for in Article 3 of Regulation (EU) No 648/2012, that Article 382 should also be amended accordingly.

Removed(6) Given the fact that entities that are established in countries that are listed as high-risk third countries that have strategic deficiencies in their regime on anti-money laundering and counter terrorist financing, as referred to in Article 9 of Directive (EU) 2015/849 of the European Parliament and of the Council, or in third countries that are listed in Annexes I and II to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes are subject to a less stringent regulatory environment, their operations may increase the risk, including due to increased counterparty credit risk and legal risk, for the Union financial stability. Consequently, such entities should not be eligible to be considered in the framework of intragroup transactions.

Removed(7) Strategic deficiencies in the regime on anti-money laundering and counter terrorist financing, or lack of cooperation for tax purposes are not necessarily the only factors that can influence risk, including counterparty credit risk and legal risk, associated with derivative contracts. Other factors, such as the supervisory framework, also play a role. The Commission should therefore be empowered to adopt delegated acts to identify the third countries whose entities may not benefit from those exemptions despite not being identified in those lists. Considering that intragroup transactions benefit from reduced regulatory requirements, regulators and supervisors should carefully monitor and assess the risks associated with transactions involving entities from third countries.

Removed(8) To ensure a level playing field between Union and third-country credit institutions offering clearing services to pension scheme arrangements, an exemption from the clearing obligation under Article 4, point (iv), of Regulation (EU) No 648/2012 should be introduced where a Union financial counterparty or a non-financial counterparty that is subject to the clearing obligation enters into a transaction with a pension scheme arrangement established in a third country which is exempted from the clearing obligation under that third country’s national law.

Removed(9) Regulation (EU) No 648/2012 promotes the use of central clearing as the main risk-mitigation technique for OTC derivatives. The risks associated with an OTC derivative contract are therefore best mitigated when that derivative contract is cleared by a CCP authorised under Article 14 or recognised under Article 25 of that Regulation. It follows that in the calculation of the position that is compared to the thresholds specified pursuant to Article 10(4), point (b), of Regulation (EU) No 648/2012, only those derivative contracts that are not cleared by a CCP authorised under Article 14 or recognised under Article 25 of that Regulation should be includedin that calculation.

Removed(9a) Post-trade risk reduction services generate non price-forming transactions to reduce risk in derivatives portfolios without changing the market risk. Post-trade risk reduction services include portfolio compression, portfolio optimisation and rebalancing services. Post-trade risk reduction services reduce systemic risk and operational risk, and are therefore a valuable tool in improving the resilience of the derivatives market. As explained by ESMA in its Report to the European Commission of 10 November 2020 as well as in its letter to the Commission of 1 April 2022, the application of the clearing obligation to transactions resulting from post-trade risk reduction services limits the use of those services to uncleared portfolios, and can lead to an increase in the use of complex products that are not subject to the clearing obligation. To facilitate the use of post-trade risk reduction services, a targeted and conditional exemption from the clearing obligation for transactions resulting from post-trade risk reduction services should be introduced. Such an exemption should concern only the risk neutral transactions resulting from the post-trade risk reduction exercise, while it would leave the original trades, in respect of which the risk reduction exercises are performed, subject to the clearing obligation where applicable. Accordingly, the exemption would remove barriers to the use of post-trade risk reduction services in portfolios to be cleared, allow a broader range of counterparties to have access to those risk reduction techniques, and reduce market complexity. By facilitating risk reduction, the increased use of post-trade risk reduction services would decrease collateral requirements for counterparties, and thus improve the overall availability of liquidity in the Union derivatives market. To avoid any circumvention of the clearing obligation, the exemption should be targeted and conditional. In other words, it should be limited to post-trade risk reduction services that mitigate or reduce risks and that are performed by a third party post-trade risk reduction service provider independently and under certain conditions. ESMA should be mandated to develop regulatory technical standards to further specify and ensure the uniform application of such conditions. In addition, to ensure that ESMA and national competent authorities can carry out their supervisory tasks in relation to the clearing obligation, counterparties should notify their intention to apply the exemption.

Removed(10) It is necessary to address the financial stability risks associated with excessive exposures of Union clearing members and clients to systemically important third-country CCPs (Tier 2 CCPs) that provide clearing services that have been identified by ESMA as clearing services of substantial systemic importance pursuant to Article 25(2c) of Regulation (EU) No 648/2012. In December 2021, ESMA concluded that the provision of certain clearing services provided by two Tier 2 CCPs, namely for interest rate derivatives denominated in euro and Polish zloty, Credit Default Swaps (CDS) denominated in euro and Short-Term Interest Rate Derivatives (STIR) denominated in euro, are of substantial systemic importance for the Union or one or more of its Member States. As noted by ESMA in its December 2021 assessment report, were those Tier 2 CCPs to face financial distress, changes to those CCPs’ eligible collateral, margins or haircuts may negatively impact the sovereign bond markets of one or more Member States, and more broadly the Union financial stability. Furthermore, disruptions in markets relevant for monetary policy implementation may hamper the transmission mechanism critical to central banks of issue. Measures requiring financial counterparties and non-financial counterparties that are subject to the clearing obligation to hold, directly or indirectly, active accounts▌ at CCPs established in the Union are therefore appropriate. That requirement should reduce the provision of those clearing services by those Tier 2 CCPs to a level where such clearing is no longer of substantial systemic importance. In light of recent market developments, in particular concerning central securities depositories, it is also appropriate that the requirement applies only to interest rate derivatives denominated in euro and Polish zloty and STIR derivatives denominated in euro, in addition to any other clearing service deemed to be of substantial systemic importance by ESMA in its future assessments pursuant to Regulation (EU) No 648/2012.

Removed(10a) Given the novelty of the requirement on financial and non-financial counterparties that are subject to the clearing obligation to hold, directly or indirectly, accounts at CCPs established in the Union and its potential impact on the competitiveness of clearing members established in the Union and on clients, it is appropriate that the requirement is phased in gradually. Initially, financial and non-financial counterparties should be required to exchange initial and variation margins in an account at a CCP established in the Union, and to ensure that the necessary IT connectivity and legal documentation is in place. In order to ensure the resilience of those accounts in the face of a significant and sudden increase of clearing activity, it is also appropriate to regularly stress test those accounts, and to report to ESMA on the outcome of those stress tests. Finally, it is also appropriate that the requirement only applies to derivative contracts that are entered into after the entry into force of this Regulation, so as not to compromise the existing positions of the counterparties subject to the requirement.

Removed(11) The financial stability risks associated with excessive exposures of clearing members established in the Union and clients to systemically important third-country CCPs (Tier 2 CCPs) may not be sufficiently addressed by the requirement to hold active accounts at CCPs established in the Union. It is therefore appropriate to provide for the possibility of the Commission adopting a delegated act in order to supplement that requirement by specifying the details of the level of substantially systemic clearing services to be maintained in the active accounts in Union CCPs by financial and non-financial counterparties subject to the clearing obligation. Such calibration should not go beyond what is necessary and proportionate to reduce clearing in the identified clearing services at Tier 2 CCPs concerned. The Commission should consider the goal of the capital markets union, and should only adopt the delegated act if the identification of the level of substantially systemic clearing services to be maintained in the active accounts in the Union clearly contributes to financial stability without distorting competition dynamics in the Union by, amongst other things, incentivising the creation of vertical silos in market infrastructures, and without affecting the international competitivneess of Union counterparties. In that regard, the Commission, supported by an ESMA report if necessary, should carry out a cost-benefit analysis to better consider the costs, risks and the burden such calibration entails for financial and non-financial counterparties, the risk of reduction of their market share, and the risk that those costs are passed on to non-financial firms or end investors. In addition, suitable phase-in periods for the progressive implementation of the requirement to hold a certain level of the clearing activity in the accounts at Union CCPs should be foreseen.

Removed(11a) Financial stability considerations are strongly interlinked with an adequate supervisory framework, and specifying the details of the level of substantially systemic clearing services to be maintained in active accounts at CCPs in the Union can only be effective if it is accompanied by proportionate measures related to the supervision of Union CCPs. It is therefore appropriate that the Commission adoption of the delegated act supplementing the requirement to hold an active account at CCPs established in the Union is subordinated to the direct supervision of Union CCPs by ESMA.

Removed(12) To ensure that clients are aware of their options and can take an informed decision as where to clear their derivative contracts, clearing members and clients that provide clearing services in both Union and recognised third-country CCPs should inform their clients about the option to clear a derivative contract in a Union CCP, and should clearly disclose the costs associated with clearing▌ services in the different CCPs where it is possible to clear those contracts. Such obligation to inform should be distinct from the active account requirement. Relevant clearing members should also systematically propose Union clearing alternatives to clients even for services that are not determined as being of substantial systemic importance by ESMA.

Removed(13) To ensure that ESMA has the necessary information on the clearing activities undertaken by clearing members or clients in recognised CCPs, a reporting obligation should be introduced for such clearing members or clients. The information to be reported should distinguish between securities transactions, derivative transactions traded on a regulated market and over-the-counter (OTC) derivatives transactions. ESMA should, in close cooperation with the ESCB, specify the precise content and format of the information to be reported, and in doing so should ensure that the obligation does not create additional reporting requirements, unless necessary, so that the administrative burden for clearing members or clients is minimised. It is also appropriate to consider the concerns raised by the supervisory community about the data quality of the reporting made by financial and non-financial counterparties pursuant to Regulation (EU) No 648/2012. Entities subject to the reporting obligation pursuant to that Regulation should therefore be required to exercise due diligence by applying data quality checks before submitting their data. ESMA should be able to adopt appropriate penalties in the case of infringements of that due diligence requirement.

Removed(13a) Under the current framework, ESMA receives transaction data under Regulation (EU) No 648/2012 and Regulation (EU) 2015/2365 of the European Parliament and of the Council, which provide a Union-wide view on markets, but not on CCPs' risk management. That lack of data creates substantial issues for ESMA, which requires timely and reliable information on CCPs’ activities and practices to fulfill its financial stability mandate. It is therefore necessary that a formal reporting requirement regarding CCP risk management data by Union CCPs to ESMA be introduced. That would also help to further strengthen standardisation and comparability across data and ensure it is delivered on time, while the fact that it covers similar data as the reports prepared by Union CCPs and shared with the college on a monthly basis means that it would not be an additional burden for CCPs. In addition to the possibility for ESMA to request data directly from CCPs, clearing members and clients during periods of market turmoil, the data received in the monthly voluntary data reports via the college should be formalised to ensure higher standardisation, comparability and timely delivery.

Removed(14) Macroprudential supervision is not restricted to transactions between financial counterparties, but also requires the monitoring of exposures between financial and non-financial counterparties belonging to the same consolidation. Regulation (EU) 2019/834 of the European Parliament and of the Council amended Regulation (EU) No 648/2012 to introduce, inter alia, an exemption from reporting requirements for OTC derivative transactions between counterparties within a group, where at least one of the counterparties is a non-financial counterparty. That exemption has been introduced because intragroup transactions involving non-financial counterparties represent a relatively small fraction of all OTC derivative transactions and are used primarily for internal hedging within groups. As such, those transactions do not significantly contribute to systemic risk and interconnectedness with the rest of the financial system. The exemption for those transactions from reporting requirements has, however, limited the ability of ESMA, the ESRB and other authorities to clearly identify and assess the risks taken by non-financial counterparties. To ensure more visibility on intragroup transactions, considering their potential interconnectedness with the rest of the financial system and taking into account recent market developments, in particular strains on energy markets as a result of Russia’s unprovoked and unjustified aggression against Ukraine, while maintaining a proportionate approach that does not result in a substantial increase of the costs for non-financial counterparties, that exemption should be first removed for non-financial counterparties subject to the clearing obligation. ESMA should be required to assess whether the removal of the exemption for those non-financial counterparties results in a sufficiently clear improvement of its supervisory tasks and, if necessary, should propose to extend the reporting obligation to all non-financial counterparties.

Removed(15) To ensure that competent authorities are at all times aware of exposures at entity and group level and are able to monitor such exposures, competent authorities should establish effective cooperation procedures to calculate the positions in contracts not cleared at an authorised or recognised CCP andto actively evaluate and assess the level of exposure in OTC derivative contracts at entity and group level.