On 1 June 2023, the European Securities and Markets Authority (ESMA) published guidelines on the application of the circumstances under which a central counterparty (CCP) is deemed to be failing or likely to fail.
The guidelines apply to Member State competent authorities and are based on Article 22(6) of the Regulation on a framework for the recovery and resolution of CCPs (CCPRRR). In addition, the final two guidelines are based on Article 16(1) of the ESMA Regulation.
The guidelines clarify the different circumstances under which a CCP is deemed to be failing or likely to fail, one of the three cumulative conditions set out in Article 22(1) of the CCPRRR for triggering a resolution action. In particular, they aim to promote the convergence of supervisory and resolution practices with respect to how and when resolution should be triggered with respect to the circumstances under which a CCP is deemed to be failing or likely to fail. For these purposes, the guidelines list a set of objective elements that should support the determination that a CCP is failing or likely to fail, in accordance with the circumstances laid down in Article 22(3) of the CCPRRR.
ESMA has produced the final two guidelines in accordance with Article 16(1) of the ESMA Regulation. It has issued these guidelines given the need to provide guidance on the consultation and information exchange between the Member State competent authority and the resolution authority for the purposes of making a determination if a CCP is failing or likely to fail.
The guidelines will apply two months after the date of publication on ESMA’s website in the official languages of the European Union.