ESMA to reassess TC-CCPs recognition decisions, including ones about UK-based CCPs

Maria Nikolova

In particular, ESMA will assess whether the classes of OTC derivatives cleared by recognised TC-CCPs should be subject to the clearing obligation as foreseen in EMIR.

MiFID II implementation likely to be set back even further

The European Securities and Markets Authority (ESMA) today published its 2020 Supervision Work Programme, detailing the areas of focus for its supervision this year.

The list of priorities for 2020 includes supervision of Third Country Central Clearing Counterparties (CCPs) & Central Securities Depositories (CSDs).

During 2019, ESMA issued several communications regarding Brexit confirming that ESMA considered that the conditions for recognition under Article 25 of EMIR were met by the three UK-based CCPs in case of a no-deal Brexit. Therefore, it has adopted decisions to recognise them as TC-CCPs under EMIR.

The Brexit deadline was extended several times. Given the nature of the current extension and the high level of uncertainty as to the final timing and conditions of Brexit, ESMA will issue further announcements and adjust and update its contingency measures (i.e. the conditional recognition decisions) for the UK-based CCPs as matters develop.

Further to the necessary steps of reviewing and checking the data received and issuing corresponding follow-up requests, ESMA has finalised its analysis on potential risks recognised TC-CCPs might bring to the EU and has identified areas of monitoring focus for the following years.

In March 2019, the European Parliament, the Council and the European Commission reached a political agreement on the review of the regulatory framework for the authorisation and supervision of CCPs established in Title III of Regulation 648/2012 (EMIR 2.2). EMIR 2.2 entered into force on January 1, 2020.

This review of EMIR introduces a new category of TC-CCPs, the systemically important or likely to become systemically important CCPs (Tier 2 CCPs), which in order to be recognised under Article 25 of EMIR, have to comply, among other things, with the EMIR requirements set out in Article 16 and Titles IV and V of EMIR. Those Tier 2 CCPs will be under ESMA’s ongoing direct supervision whereas Tier 1 CCPs will be subject to the currently applicable regime of recognition and on-going monitoring.

The European Commission will adopt a delegated act in accordance with Article 82 of EMIR to further specify the criteria set out in Article 25(2a) of EMIR. The same applies with regards to a delegated act on comparable compliance minimum elements to be assessed and modalities and conditions to carry out the assessment as well as one for fees associated to application and annual fees for recognised TC-CCPs.

Once the delegated acts on tiering and comparable compliance will be in force, ESMA will be able to exercise its powers fully and execute the new recognition process for the new TC-CCP applicants and also for the TC-CCPs which are already recognised and for which ESMA has 18 months to review the recognition decision.

In this context, ESMA says that, in 2020, it will focus on re-assessing the current TC-CCPs recognition decisions, including the UK-based CCPs ones as appropriate, and then perform the corresponding supervisory and monitoring actions depending on the tier where each TC-CCP stands.

In particular, ESMA will assess whether the classes of OTC derivatives cleared by recognised TC-CCPs should be subject to the clearing obligation as foreseen in EMIR.

ESMA will also have to establish and manage a college to facilitate the sharing of information on TC-CCPs, within four months of the entry into force of the tiering delegated act.

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