On 10 February 2016, the European Commissioner for Financial Stability, Financial Services and Capital Markets Union, Jonathan Hill and the United States Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad announced a common approach regarding requirements for central counterparties (CCPs). Two key elements of the common approach are EU equivalence and CFTC substituted compliance.

The European Commission has now adopted an equivalence decision for CCPs in the United States.

Commissioner Hill stated: “This is an important step forward for global regulatory convergence and implementing our agreement with the CFTC. It means that US CCPs, once recognised by ESMA, can continue to provide services to EU companies. We look forward to the CFTC’s forthcoming decision on substituted compliance which will allow European CCPs to do business in the United States more easily.”

A CCP wishing to obtain recognition must apply to the European Securities and Markets Authority (ESMA). ESMA will then process the application in cooperation with the relevant regulators of the CCP that has applied for recognition. Under this equivalence decision, US CCPs seeking recognition in the EU will need to confirm that their internal rules and procedures meet certain conditions set out in the decision relating to the calculation of initial margins and the default fund.

CCPs that have been recognised under the EU process will also obtain qualifying CCP status under the Capital Requirements Regulation. This means that EU banks’ exposures to these CCPs will be subject to a lower risk weight in calculating their regulatory capital.

View European Commission adopts equivalence decision for CCPs in USA, 15 March 2016