On 31 January 2022, the European Securities and Markets Authority (ESMA) published its final reports on the recovery regime for central counterparties (CCPs), as required under the Regulation on CCP recovery and resolution (CCPRRR). The seven final reports are intended to further assist the preparedness of the market and ensure that CCPs can  restore their financial soundness, without any extraordinary public financial support, and allow them to continue to provide critical functions following a significant deterioration of their financial situation or in a situation of financial distress.

The final reports are as follows:

  • Guidelines on the consistent application of the triggers for the use of early intervention measures (Article 18(8) of the CCPRRR). The guidelines provide Member State competent authorities with guidance on the situations under which they should consider the application of early intervention measures to CCPs. Specifically, the guidelines provides indicators guiding on the application of the triggers prompting the consideration of whether to apply early intervention measures.
  • Guidelines on CCP recovery plan scenarios (Article 9(12) of the CCPRRR). The guidelines cover the range of scenarios to be considered for the purposes of CCP recovery plans (‘recovery plan scenarios’).
  • Guidelines on CCP recovery plan indicators (Article 9(5) of the CCPRRR). The guidelines set out the minimum list of qualitative and quantitative indicators referred to in Article 9(3) of the CCPRRR (‘recovery plan indicators’). Article 9(3) of the CCPRRR stipulates that the recovery plan shall include a framework of indicators based on the risk profile of the CCP, that identify the circumstances under which measures in the recovery plan are to be taken. The indicators may be of either a qualitative or a quantitative nature relating to the financial soundness and operational viability of the CCP and should enable recovery measures to be taken early enough to provide sufficient time for the plan to be implemented.
  • Draft regulatory technical standards (RTS) further specifying the factors that shall be considered by the Member State competent authority and the supervisory college when assessing the CCP recovery plan (Article 10(12) of the CCPRRR). The Member State competent authority and the supervisory college of a CCP should in accordance with Article 10(2) of the CCPRRR review the recovery plan and assess the extent to which it satisfies the requirements set out in Article 9 of the CCPRRR. The assessment should include whether the plan is comprehensive and whether it could restore the viability of the CCP, in a timely manner, including under scenarios of severe financial markets distress. The review shall use the factors referred to in points (a), (b) and (c) of paragraph 3 of Article 10 of the CCPRRR. The RTS further specify the factors referred to in points (a), (b) and (c) of Article 10(3) of the CCPRRR.
  • Guidelines further specifying the circumstances for temporary restrictions in the case of a significant non-default event in accordance with Article 45a of the European Market Infrastructure Regulation (EMIR). Article 87 of the CCPRRR introduces a new Article 45a in the EMIR, which allows a Member State competent authority to request a CCP to limit or restrict dividend payments, share buy-backs and payment of bonuses to the CCP’s senior management following a significant non-default event. The guidelines cover the circumstances in which the Member State competent authority may require the CCP to implement these restrictions.
  • Regulatory technical standards (RTS) specifying the conditions for recompense (Article 20(2) of the CCPRRR). The RTS specify the order in which recompense must be paid, the appropriate maximum number of years and the appropriate maximum share of the CCP’s annual profits referred to in the second subparagraph of paragraph 1 of Article 20 of the CCPRRR.
  • RTS on the methodology for calculation and maintenance of the additional amount of pre-funded dedicated own resources (Article 9(15) of the CCPRRR). The RTS specify the methodology for calculation and maintenance of a CCP’s additional amount of prefunded dedicated own resources (or ‘second skin in the game’).

The ESMA has submitted the final reports concerning the RTSs to the European Commission which now has three months to decide whether to endorse the proposed standards under a Delegated Regulation.

The ESMA has also submitted the Guidelines for translation and once translated into all official languages of the EU, ESMA will focus on the consistent application of the Guidelines by Member State competent authorities and CCPs where applicable.