Third-Country CCPs
The Review of the European Markets Infrastructure Regulation (EMIR 2.2) has established a progressive and risk-driven approach to the recognition of third-country CCPs (TC-CCPs).
TC-CCPs are categorised depending on the level of risks they pose to the financial stability of the Union or one or more of its Member States either as a Tier 1 or Tier 2 TC-CCP.
Recognition and monitoring
A TC-CCP established in a third country may only provide clearing services to clearing members and trading venues established in the Union, if that TC-CCP is recognised by ESMA. As part of the recognition process, ESMA is also required to tier each TC-CCP (as a Tier 1 or Tier 2 TC-CCP).
This recognition shall be reviewed when that CCP intends to extend or reduce the range of its activities and services in the Union and in any case at least every five years.
Recognition is dependent on the European Commission adopting an equivalence decision for the third-country’s legal, supervisory and enforcement framework in relation to CCPs, and ESMA concluding cooperation arrangements or Memoranda of Understanding (MoU) with the relevant authorities to support supervisory cooperation and information exchange.
ESMA also monitors the regulatory and supervisory developments in third-country jurisdictions for which the European Commission has adopted equivalence decisions.
Tier 1 TC-CCPs
The new provisions under EMIR provide a first response to the risks posed by TC-CCPs to the financial stability of the Union. TC-CCPs that qualify as non-systemically important (Tier 1) TC-CCPs are recognised on the basis of appropriate deference to their home authority.
ESMA monitors Tier 1 TC-CCPs depending on the risks related to their EU activities by building on comprehensive information gathered directly from the TC-CCPs and through the updated Memoranda of Understanding (MoUs) between ESMA and third-country authorities.
ESMA is notified on key developments and receives supplementary information on TC-CCPs, especially on significant changes to the risk models and parameters, the extension of activities and services, changes in the client account structure and in the use of payment systems as well as developments in financial markets, which may have an adverse effect on market liquidity and the stability of the financial system in the Union.
Tier 2 TC-CCPs
TC-CCPs that qualify as systemically important (Tier 2 TC-CCPs) are required to comply with the relevant EMIR requirements (Titles IV and V and Article 16), either directly or via ‘comparable compliance’, and are subject to supervision by ESMA, in accordance with the mandate outlined under Articles 25(2b) and 25b of EMIR.
ESMA is in charge of supervising Tier 2 TC-CCP’s activities and their ongoing compliance with the relevant EMIR requirements, in accordance with Article 25b, as well as conducting a comprehensive review of key decisions, such as the extension of services or significant changes to risk models, supported by enhanced cooperation arrangements and enforcement powers and, if necessary, proposing remedial actions to preserve the stability of the Union’s financial system and to lower the potential risk of a CCP failure.
ESMA's supervision of the Tier 2 TC-CCPs is through regular and ad hoc reviews, with focus on the potential risks related to their interlinkages to the EU financial system, and the risks that could pose to the financial system of the EU or one of its Member States. ESMA pays particular attention to the services of substantial systemic importance (in accordance with Article 25(2c)) in its supervision.
As part of the supervision activities, Tier 2 TC-CCPs are included in ESMA’s regular CCP Stress-Test exercises, which are key tool for assessing system-wide risks related to Tier 2 TC-CCPs.
