On 18 November 2021, the European Securities and Markets Authority (ESMA) issued six consultation papers containing draft regulatory technical standards (RTS) on:

• Resolution colleges.
• The valuation of central counterparties’ (CCPs) assets and liabilities in resolution.
• The safeguards for clients and indirect clients.
• The content of resolution plans.

The consultation papers also contain draft guidelines on:

• The valuation in termination of contracts.
• The application of the circumstances under which a CCP is deemed to be failing or likely to fail.

The consultation papers can be found here:

• Consultation Paper – Draft RTS on safeguards for clients and indirect clients.

Article 63 of Regulation (EU) 2021/23 on recovery and resolution of CCPs (CCPRRR) stipulates safeguards for clients and indirect clients. Where a contractual arrangement allows clearing members to pass on to their clients the negative consequences of the resolution tools those contractual arrangements shall also include, on an equivalent and proportionate basis, the right of clients to any recompense or compensation clearing members receive in accordance with Article 27(6) or any cash equivalent of such recompense or compensation or any proceeds they receive following a claim made in accordance with Article 62 to the extent that such proceeds are related to client positions. Those provisions shall also apply to the contractual arrangements by clients and indirect clients offering indirect clearing services to their clients. Article 63 also contains the mandate for ESMA to specify in a transparent manner, to the extent allowed by confidentiality of contractual arrangements, the conditions under which the passing on of compensation is required, and the conditions under which it is to be considered proportionate.

• Consultation Paper – Draft RTS on the requirements for independent valuers, the methodology for assessing the value of the assets and liabilities of a CCP, the separation of the valuations, the buffer for additional losses to be included in provisional valuations and the methodology for carrying out the valuation for the purpose of the ‘no creditor worse off’ principle.

Article 25(6) of the CCPRRR mandates ESMA to develop draft RTS to specify: (i) the circumstances under which a person is deemed to be an independent valuer, from both the resolution authority and from the CCP; (ii) the methodology for assessing the value of the assets and liabilities of the CCP for the purpose of valuations in resolution; and (iii) the separation of the valuations under Articles 24 and 61. Article 26(4) of the CCPRRR mandates ESMA to develop draft RTS to specify the methodology for calculating the buffer for additional losses to be included in provisional valuations. Article 61(5) of the CCPRRR mandates ESMA to develop draft RTS specifying the methodology for carrying out the valuation for the purpose of assessing compliance with the ‘no creditor worse off’ principle.

• Consultation Paper – Draft Guidelines for the methodology to value each contract prior to termination.

Article 29 of CCPRRR mandates ESMA to issue guidelines specifying the methodology to be used by the resolution authority for determining the valuation of contracts to be terminated under that Article and how the CCP values each contract. The purpose of this consultation paper is to present the draft guidelines.

• Consultation Paper – Draft RTS on resolution colleges.

Article 4(7) of the CCPRRR mandates ESMA, to develop draft RTS specifying the content of the written arrangements and procedures for the functioning of the resolution colleges. For the purposes of preparing those RTS, ESMA shall take into account the relevant provisions of the delegated acts adopted on the basis of Article 88(7) of Bank Recovery and Resolution Directive.

• Consultation Paper Draft RTS on the content of CCP resolution plans.

ESMA’s mandate, set out under Article 12(9) of CCPRRR, is to develop draft RTS specifying the content of the resolution plan in accordance with Article 12(7) of CCPRRR. When developing the draft RTS, ESMA shall enable sufficient flexibility for resolution authorities to take into consideration the specificities of their national legal framework in the area of insolvency law, as well as the nature and complexity of the clearing business performed by the CCPs.

• Consultation Paper – Draft Guidelines on the application of the circumstances under which a CCP is deemed to be failing or likely to fail.

These 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 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 this purpose, 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 CCPRRR. The guidelines do not purport to constrain the ultimate discretion of the competent authority and of the resolution authority in making the determination that a CCP is failing or likely to fail.

The closing date for responses to each of the consultations is 24 January 2022. ESMA will organise an open hearing on the consultation papers on 14 January 2022 (registrations to open in December). ESMA will consider the responses to these consultations with a view to publishing the final reports by Q2 2022.