Changes from report parliamentary committee draft to plenary report

RemovedEXPLANATORY STATEMENT

Added(b) where a CCP intends to activate its recovery plan pursuant to Article 9 of Regulation (EU) No 2021/23, a competent authority has taken an early intervention measure pursuant to Article 18 of that Regulation or a competent authority has required a total or partial removal of the senior management or board of the CCP pursuant to Article 19 of that Regulation;

RemovedIn the wake of the 2008/9 financial crisis, the derivatives market was brought to the spotlight, highlighting the role that these financial instruments play in the economy as well as the risks that they mitigate and the risks that they bring.

Added(c) where there are developments in financial markets, which may have an adverse effect on market liquidity, the transmission of monetary policy, the smooth operation of payment systems or the stability of the financial system in any of the Member States where the CCP or one of its clearing members are established.

RemovedIn 2012, the EU adopted the European Market Infrastructure Regulation (EMIR), which introduced reporting requirements for derivatives transactions and risk-mitigation measures, notable the obligation to clear certain transactions at a CCP or by exchanging collateral (margins) in bilateral transactions. EMIR expanded central clearing and made the Union’s markets more stable, resilient, transparent, efficient, and, overall, safer. EMIR 2.2 attempted to introduce changes to adapt the regulatory framework for the clearing ecosystem in the Union and make it even safer.

Added2. ESMA shall coordinate competent authorities, the resolution authority designated pursuant to Article 3(1) of Regulation (EU) 2021/23 and colleges to build a common response to emergency situations relating to a CCP.

RemovedSince the enter into force of EMIR 2.2, the clearing landscape in the Union has undergone significant changes. The role of CCPs - and the risks that they manage - has grown considerably, with 14 EU CCPs expanding their services across markets, currencies and owners, and in certain cases, in multiple jurisdictions. The withdrawal of the United Kingdom from the Union - and the change in the status of UK CCPs, now third-country CCPs (TC-CCPs) - significantly altered the market dynamics and increased the reliance of EU clearing members and clients on market infrastructure of third-country jurisdiction. The global pandemic, the Russian aggression on Ukraine, the energy crisis, and high-inflation, all increased the risks in the system, affected the orderly functioning of the markets and offered invaluable lessons for the future of the EU clearing ecosystem.

Added3. In case of emergency situations, except where a resolution authority has taken a resolution action in relation to a CCP pursuant to Article 21 of Regulation (EU) No 2021/23, and to coordinate the responses of competent authorities, a meeting of the CCP Supervisory Committee:

RemovedEMIR 3.0 provides an opportunity to reassess post-trade market infrastructures in light of the abovementioned changes and ensure that the EU clearing ecosystem remains safe, robust and competitive.

Added(a) may be convened by the Chair of the CCP Supervisory Committee;

RemovedThe Commission proposal offers a good starting point for the discussions, but it is clear that there is room for improvement. The changes require careful calibrations, in the spirit of an overall balanced approach and to the long-term benefit of EU market participants and financial system resilience.

Added(b) shall be convened by the Chair of the CCP Supervisory Committee, upon the request of two members of the CCP Supervisory Committee.

RemovedThe Rapporteur has extensively engaged with the Commission, ESMA, the ECB, the ESRB, market participants and other relevant stakeholders, and is proposing a text that is coherent, measured and impactful. Overall, the amendments are guided by three main objectives:

Added4. Any of the following authorities may also be invited to the meeting referred to in the paragraph 3, where relevant, considering the issues to be discussed at the meeting:

Removedi. increase of the attractiveness and the competitiveness of the EU clearing ecosystem;

Added(a) the relevant central banks of issue;

Removedii. increase of demand for clearing services at EU CCPs;

Added(b) the relevant competent authorities for the supervision of clearing members, including, where relevant, the ECB in the framework of the tasks concerning the prudential supervision of credit institutions within the single supervisory mechanism conferred upon it in accordance with Council Regulation (EU) No 1024/2013;

Removediii. establishing an adequate supervisory framework.

Added(c) the relevant competent authorities for the supervision of trading venues;

RemovedSupply and demand side measures

Added(d) the relevant competent authorities for the supervision of clients where they are known;

RemovedThe Rapporteur is of the opinion that the objectives proposed by the Commission in relation to increasing the attractiveness of EU CCPs (‘supply side’) and increasing the demand for clearing at EU CCPs (‘demand side’) are interrelated.

Added(e) the relevant resolution authorities designated pursuant to Article 3(1) of Regulation (EU) 2021/23.

RemovedEnabling EU CCPs to expand their offerings more rapidly, simplifying and reducing the burden that they face should be a key objectives of the revised EMIR framework. More efficient regulatory approval timelines are essential for the competitiveness of EU CCPs on a global scale: the lengthy and complex procedures that EU CCPs have to go through when asking for an extension of service or the approval of a new one are reducing their competitiveness and broader attractiveness of clearing in the Union.

AddedWhere a meeting of the CCP Supervisory Committee is held pursuant to the first subparagraph, the Chair shall inform EBA, EIOPA, the ESRB and the Commission thereof who shall also be invited to participate to that meeting upon their request.

RemovedProviding the conditions for clearing members and clients to want to clear with EU CCPs is possibly the single, most effective and most sustainable way to increase clearing in the EU and reduce the reliance on TC-CCPs.

AddedWhere a meeting is held following an emergency situation as specified in paragraph 1, point (c), the Chair shall always invite the relevant central banks of issue to participate in that meeting.

RemovedThe Rapporteur therefore proposes several amendments that go in this direction and beyond the Commission proposal. In particular, the Rapporteur proposes that the “non-objection procedure” proposed by the Commission is further streamlined, by introducing a new category of ‘business-as-usual’ changes, for which no specific approval process, other than the assessment by ESMA and the college as part of the annual review, should be necessary. At the same time, the amendments seek to provide legal certainty in Level 1 with respect to what type of procedure is needed for regulatory approval, and in particular on the exact cases when a change should be considered significant or non-significant, and therefore whether the non-objection procedure applies or not. The amendments also seek to introduce greater clarity on the margin models applied by CCPs and more transparency on the cost consideration for clients when they are presented with the choice of where to clear. These two measures should allow for better decision-making by clients and for better liquidity planning for clearing members.

Added5. ESMA may, by simple request, require authorised CCPs, their clearing members and clients, connected financial market infrastructures and related third parties to whom those CCPs have outsourced operational functions or activities to provide all necessary information to enable ESMA to carry out its coordination function under this Article.

RemovedWith respect to the measures to increase the demand for clearing services in Europe in connection to the objective of reducing dependencies on third-country CCPs, the Rapporteur believes that the introduction of the ‘Active Account Requirement’ (AAR) should be gradually phased-in, given the novelty of the requirement and its potential impact on the competitiveness of EU clearing members and clients. In the first phase, EU counterparties should be required to exchange initial and variation margins in an account at a CCP established in the Union, and to regularly enter into new positions on that same account. Such material requirements will ensure the effectiveness of the AAR in its first phase, without the necessity to subject EU counterparties to a quantitative threshold. A materially active account will represent a credible requirement particularly for those counterparties that are not internationally active or whose portfolios are mostly composed of euro-denominated products.

Added▌

RemovedAt the same time, it is necessary to ensure that the calibration of the level of the clearing activity to be maintained in accounts at EU CCPs can be adapted to changing circumstances, and can be adjusted in light of the effectiveness, or lack thereof, of the introduction of the requirement. Following the introduction of the AAR as described above, ESMA and the Joint Monitoring Mechanism should assess whether that requirement was sufficient to achieve its purported objectives, namely to mitigate, or be, in the absence of further measures, likely to mitigate, the financial stability risks associated with excessive reliance on TC CCPs. It is important that, alongside the financial stability considerations, the competitiveness of Union clearing members and clients is also considered. Where that assessment leads to the conclusion that further measures are necessary, the second phase for the AAR should lead to the development of ESMA RTS specifying the proportion of substantially systemic clearing services to be maintained in the active accounts in EU CCPs.

Added(20) Article 24a is amended as follows:

RemovedThe phased approach will allow ESMA to collect the necessary data to assess the costs and benefits of the AAR and to measure the impact of its implementation in the relocation of clearing activities and in the competitiveness of EU market participants. At the same time, the first phase will also provide enough time for the supply-side and supervisory measures to start having an effect, which could lead to more clearing moving to EU CCPs (regardless of the AAR).

Added(-a) in paragraph 1, the following point is inserted:

RemovedThe Rapporteur believes that the proposed approach introduces enough flexibility in the framework, while addressing the inherent tension between the political goal of reducing the reliance on third country’s CCPs with market arguments about the competitiveness of EU firms. An AAR that is gradually introduced and modulated should balance EU actors' international competitiveness with the goal of achieving financial stability and increasing clearing volumes in the EU, and avoid a logic of divergence and location-based policies.

Added‘(e) the competent authorities responsible for the supervision of the three clearing members with the largest contributions, calculated on an aggregate basis over a one-year period, to the default fund, referred to in Article 42 of this Regulation, of each of the CCPs authorised in accordance with Article 14 or recognised in accordance with Article 25 of this Regulation, including, where relevant, the ECB in the framework of the tasks concerning the prudential supervision of credit institutions within the single supervisory mechanism conferred upon it in accordance with Council Regulation (EU) No 1024/2013, who shall be non-voting.’

RemovedSupervisory framework

Added(a) in paragraph 2, point (d) (ii) is replaced by the following:

RemovedThe current approach of decentralised supervision is no longer suitable to address the increasing cross-border exposures cleared at EU CCPs and in light of the systemic interconnectedness that central clearing creates between CCPs, clearing members and clients. A more coordinated and integrated approach to the supervision of EU CCPs appears necessary, especially as more systemic activity is expected to shift towards the Union via the requirement to hold active accounts at EU CCPs for substantially systemic services.

Added‘(ii) where the CCP Supervisory Committee convenes in relation to CCPs authorised in accordance with Article 14, in the context of discussions pertaining to paragraph 7 of this Article, the central banks of issue of the Union currencies of the financial instruments cleared by authorised CCPs that have requested membership of the CCP Supervisory Committee, who shall be non-voting.’;

RemovedMore centralised supervision would further strengthen EU wide risk monitoring and ensure a level playing field in the EU Single Market. It would reduce occurrences of divergent interpretations of EMIR, increase efficiencies, and ensure that risks concentrated in EU CCPs are adequately monitored and managed, minimising systemic risk and spill-over effects across Member States.

Added(b) paragraph 3 is replaced by the following;

RemovedESMA should be empowered with a direct supervisory role vis-a-vis EU CCPs. This requires adapting the existing supervisory framework under EMIR by providing ESMA with decision-making powers over EU CCPs. This set-up would allow ESMA to take a proactive approach on EU financial stability risks and achieve efficient supervision that takes into account the cross-border issues.

Added‘3. The Chair may invite as observers to the meetings of the CCP Supervisory Committee, where appropriate ▌, members of the colleges referred to in Article 18, representatives from the relevant authorities of clients where they are known and from the relevant Union institutions and bodies.’;

RemovedUnder this approach, all supervisory decisions pertaining to Articles 7-8, 14-17b, 20-21, 24 and Titles IV-V under EMIR would be drafted and adopted by ESMA, having taken into account the opinion of the college. The change in the approach should also cover the annual reviews, which are an essential milestone in the supervisory life-cycle of the CCP, and should therefore be conducted by ESMA and the college.

Added(c) paragraph 7 is amended as follows:

RemovedThe amendments to the Commission proposal also remove the Joint Supervisory Teams established under Article 23b. The objective for the creation of the JSTs - to enhance the involvement of college members in the process of ongoing supervision of EU CCPs - should not lead to the establishment of a new supervisory body, as this may lead to greater institutional complexity. Instead, the envisaged tasks of the JSTs should be given to the college in the context of ‘joint supervisory activities’, coordinated by ESMA.

Added(i) the introductory wording is replaced by the following:

RemovedThese changes to the supervisory system, together with the introduction of the Joint Monitoring Mechanism, will lead to a system that is clear, understandable, and where fragmentation of divergence is minimised, without losing the role of national authorities, as members of the college, in the day-to-day supervision of EU CCPs.

Added‘In relation to CCPs authorised or applying for authorisation in accordance with Article 14, the CCP Supervisory Committee shall, for the purpose of Article 23a(2), prepare decisions and carry out the tasks entrusted to ESMA in the following points:’;

Added(ii) the following points (ba), (bb) and (bc) are inserted:

Added‘(ba) at least annually, discuss and identify supervisory priorities for CCPs authorised under Article 14 in order to feed in the preparation of the Union strategic supervisory priorities by ESMA in accordance with Article 29a of Regulation (EU) No 1095/2010;

Added(bb) consider, in cooperation with the EBA, EIOPA, and the ECB in carrying out its tasks within a single supervisory mechanism under Regulation (EU) No 1024/2013, any cross-border risks arising from CCPs’ activities, including due to CCPs’ interconnectedness, interlinkages and concentration risks due to such cross-border connections;

Added(bc) prepare draft decisions for adoption by the Board of Supervisors and supervisory assessments conducted in relations to Articles 7, 8, 14 to 17ba, 20, 21, and 24 and Titles IV and V of this Regulation;’ ;

Added(ii a) point c is replaced by the following:

Added‘(c) promote the regular exchange and discussion among competent authorities designated in accordance with Article 22(1) of this Regulation in relation to:

Added(i) relevant activities undertaken by the competent authorities referred to in Article 22 and 22a when carrying out their duties in accordance with this Regulation regarding the authorisation and supervision of CCPs established in their territory;

Added(ii) relevant market developments, including situations or events which impact or are likely to impact the prudential or financial soundness or the resilience of CCPs authorised in accordance with Article 14 or their clearing members;