On 4 May 2017, the European Commission published a Communication to the European Parliament, the Council and the European Central Bank responding to certain challenges for critical financial market infrastructures and for further developing the Capital Markets Union. The Communication concluded that: “in light of considerations set out in this Communication and after offering the opportunity for stakeholder feedback on the basis of the present Communication and subject to an impact assessment, the Commission will present further legislative proposals in June to ensure financial stability and the safety and soundness of CCPs that are of systemic relevance for financial markets across the EU and to support the further development of the Capital Markets Union.”

Specifically, the Commission’s Communication explored options for ensuring appropriate protection for the financial stability and monetary policy of the EU and mentioned that: “this includes, where necessary, enhanced supervision at the EU level and/or location requirements.”

The global industry association, the FIA, has issued a response to the Commission’s Communication setting out its concerns about the potential approach of forced relocation of euro-denominated derivatives clearing to the EU.

The FIA believes that forced relocation of euro-denominated cleared derivatives would be the most disruptive and expensive approach to overseeing third-country CCPs, without improving the oversight of this activity.

The FIA also notes that forced relocation could nearly double margin requirements from $83 billion USD to $160 billion USD.

The FIA believes that the Commission’s suggestion of recognition and enhanced supervision are more effective ways to protect financial stability than forced relocation of the clearing of euro-denominated products.

The FIA further believes that the EU’s system of equivalence of third-country CCPs currently has tools necessary for on-going information gathering, inspections and oversight where necessary. However, if the EU authorities believe they need enhanced oversight powers with respect to systemically important third-country CCPs, the FIA feels that the EU should ensure such increase in powers is carefully calibrated.

The FIA recognises that further enhancements between EU authorities and the UK supervisory authorities post-Brexit may be desirable. However, such supervisory considerations do not require a location policy in order to meet their intended regulatory objectives.

View FIA cautions against forced relocation of euro clearing, 6 June 2017