On 11 November 2019, the European Securities and Markets Authority (ESMA) published three sets of technical advice to the European Commission (Commission) regarding third country central counterparties (TC-CCPs) under the revised European Market Infrastructure Regulation (EMIR 2.2).
The technical advice covers:
- how to specify the criteria to determine whether a TC-CCP is systemically important for the EU or a Member State’s financial stability (tiering);
- how to assess comparable compliance; and
- the fees to be charged to TC-CCPs.
EMIR 2.2 introduces a new category of TC-CCPs. These are systemically important or likely to be systemically important or likely to become systemically important for the financial stability of the EU or of one or more of its Member States. A TC-CCP determined as systemically important will be considered a Tier 2 CCP for the purposes of EMIR.
The Commission has to adopt a delegated act to further specify the CCP tiering criteria. Before adopting such a delegated act it must consult ESMA. ESMA received a provisional mandate from the Commission on 3 May 2019 to provide technical advice for the development of the delegated act. On 28 May 2019, ESMA published a consultation paper with its draft technical advice. The consultation ended on 29 July 2019.
The final report now published takes into account the feedback provided by respondents to the consultation and contains ESMA’s final technical advice to the Commission.
Following its consultation, ESMA has kept with a set of indicators that will further specify the criteria to assess whether a TC-CCP is systemically important or likely to become systemically important for the financial stability of the EU or of one or more of its Member States. However, in light of the responses to its consultation ESMA has amended some of the indicators to present a more focused and limited approach.
In terms of the structure of ESMA’s final report it’s worth noting that:
- section 4.1 provides ESMA’s general approach to tiering;
- section 4.2 provides general feedback from the consultation;
- section 4.3 provides feedback on indicators to assess the nature, size and complexity of the CCP;
- section 4.4 provides feedback on indicators to further assess the effect of a failure or disruption of the CCP;
- section 4.5 provides feedback on indicators to further assess the CCP’s clearing membership structure;
- section 4.6 provides feedback on the indicator to further assess alternative clearing service;
- section 4.7 provides feedback on indicators to further assess relationships, interdependencies or other interactions; and
- Annex III contains ESMA’s technical advice.
ESMA is providing its technical advice to the Commission. The Commission is empowered to adopt a delegated act to further specify the tiering criteria within 12 months from the entry into force of EMIR 2.2.
EMIR 2.2 also introduces a new system under which a Tier 2 CCP may be deemed to satisfy compliance with the requirements referred to in Article 25(2b)(a) of EMIR by complying with the regulations and requirements of its own third country.
The new procedure envisages the possibility for Tier 2 CCPs to request ESMA to assess “comparable compliance”, i.e. the extent to which a CCP’s compliance with EMIR requirements, as set out in Article 16 (CCP capital requirements) and in Title IV (CCP requirements, including organisational, conduct of business, and prudential requirements) and Title V (requirements on interoperability arrangements) of EMIR is satisfied by the CCP’s compliance with the comparable requirements applicable in the third country.
Article 25(a)(3) of EMIR mandates the Commission to adopt a delegated act to specify: (a) the minimum elements to be assessed for the purposes of “comparable compliance”; and (b) the modalities and conditions to carry out the assessment for those purposes. The Commission must consult ESMA before adopting such a delegated act. ESMA received a provisional mandate from the Commission on 3 May 2019. It ran a consultation from 28 May 2019 to 29 July 2019.
The final report now published takes into account the feedback to the consultation and contains ESMA’s technical advice to the Commission. In light of the feedback received, ESMA has confirmed its initial proposal for the assessment for comparable compliance, based on the 5 principles and the 4-step approach recalled in section 4.1 of the final report.
ESMA is providing its technical advice to the Commission. The Commission may consider the technical advice when developing and adopting the delegated act on comparable compliance. Where the Commission adopts such a delegated act (and the one on tiering criteria), ESMA may assess requests for comparable compliance from TC-CCPs which it has determined to be systemically important (Tier 2 CCPs).
The final report presents ESMA’s technical advice to the Commission on the fees to be charged to TC-CCPs in relation to the competences defined under EMIR as amended by EMIR 2.2 and following the assessment of feedback to the proposals included in ESMA’s earlier consultation.
Section 6 of the final report includes the assessment of the feedback received on the specific proposals that were consulted and each of the eight subsections contains the way forward following the assessment of the feedback. The first subsection includes the change in the fee for initial recognition of TC-CCPs to specify that each TC-CCP would pay a first fee to process its application and in case it is determined to be Tier 2, an additional one. Subsections 2 and 3 specify the approach for 2019 and 2020 fees, respectively. Subsection 4 details how comparable compliance will be reflected in the fees and the discount to the initial recognition fee if the TC-CCP applies for comparable compliance before it is recognised. Subsection 5 outlines the approach for the first-year fee. Subsection 6 sets out the framework for the calculation of annual fees and their dependence on other fees charged by ESMA in the context of EMIR 2.2. Subsection 7 presents the removal of the proposed fee in the case of full withdrawal of recognition of a TC-CCP. Subsection 8 provides the conditions for payment and reimbursement of fees.