On 22 March 2022, the European Systemic Risk Board (ESRB) published a letter that it had sent to the European Commission concerning the targeted consultation on the review of the central clearing framework in the EU.

Generally, the ESRB welcomes the consultation which reflect its proposals set out in a response to an earlier consultation by the European Securities and Markets Authority (ESMA) on determining the degree of systemic importance of LCH Ltd and ICE Clear Europe or some of their clearing services. The ESRB also makes the following general points:

  • The ESRB would, from a financial stability perspective, be in favour of allowing the two UK Tier 2 central counterparties (CCPs) to continue offering clearing services in the EU beyond the end of the temporary equivalence period on 30 June 2025. The ESRB would also see a need to increase the level of cooperation with UK authorities in important areas of CCP supervision such as liquidity management, as well as with respect to recovery and resolution.
  • The Commission’s proposals should be embedded in a framework applicable to any other CCP that might be classified as Tier 2 in the future.
  • Macroprudential measures using the substantial systemic clearing services with the reduction of systemic risk, should be seen as complementary to voluntary, market-based solutions. The use of Pillar II instruments is outside the scope of macroprudential policy and therefore is not taken into account.

For these considerations to be turned into proposals, the Commission would need to conduct a cost benefit analysis, including an assessment of unintended consequences, to test their viability. This would particularly be the case for measures intended to reduce reliance on UK Tier 2 CCPs by lowering exposures, as any exposure targets or limits would need to be calibrated carefully.

The ESRB’s letter then goes on to discuss in further detail the following topics:

  • Building capacity (which includes building resilience and reducing reliance).
  • Strengthening supervision (the ESRB refers to comments made in its response to the ESMA consultation mentioned above).