The European Council and the European Parliament have reached a deal on a common set of rules for central counterparties (CCPs) and their authorities to prepare for and deal with financial challenges.
The proposed rules aim at providing national authorities with resources to manage crises and to handle situations involving failures of key financial market infrastructures in a cohesive and coordinated manner.
The main objectives of the reform include reducing the probability of CCP failure by introducing effective incentives for proper risk management. This would enable CCPs to preserve their critical functions, to maintain financial stability, and to prevent taxpayers from bearing the costs associated with their restructuring or resolution.
The European Council said while they have built on the same principles as the recovery and resolution framework applying to banks, they have considered the specific global and systemic nature of CCPs.
The current COVID-19 pandemic was also taken into account with the co-legislators agreeing to give one additional year for trading venues and CCPs offering trading and clearing of exchange-traded derivatives to start applying open access rules under MiFID II.
Zdravko Maric, Deputy Prime Minister and Minister of finance of Croatia, said, “The current context, characterised by important volatility and uncertainty, reminds us of the vital function clearing houses play to make our financial markets safer. By putting EU rules in place to deal with their potential failure, we are adding an essential piece of legislation to secure confidence in our financial system.”
The European Association of CCP Clearing Houses (EACH) said it welcomes the political agreement. It stated, “an EU framework for CCP Recovery and Resolution plays an important role in ensuring an ex-ante definition of an efficient cooperation and coordination between authorities to address situations that would highly likely be cross-border per nature.”
It added that it was “particularly pleased that the political agreement achieves a balanced incentive structure that ensures the robustness of the clearing ecosystem, thus limiting the potential impact on taxpayers. The text provides a clear and certain path for Authorities and stakeholders in the unlikely scenario of CCP Recovery and Resolution.”