Brussels, 7 February 2024
The Council and the Parliament reached a provisional political agreement today on a review of the European market infrastructure regulation and directive. The review aims to make the EU clearing landscape more attractive and resilient, to support the EU’s open strategic autonomy and to preserve the EU’s financial stability.
I’m glad that we have found an agreement today on the review of European market infrastructure rules. This will bring more clearing services to Europe and enhance our strategic autonomy. It will also contribute to stabilising the market and make sure it functions efficiently, which is a prerequisite for a fully-fledged capital markets union.
Vincent Van Peteghem Minister of Finance of Belgium
The European Market Infrastructure Regulation (EMIR) lays down rules on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories. The proposed EMIR review contains several legislative measures to improve EU clearing services, notably by streamlining and shortening procedures, improving consistency between rules, strengthening CCP supervision and requiring market participants of substantial systemic importance, who are subject to a clearing obligation, to have an operationally active account at an EU CCP.
Main elements of the provisional agreement
The Council and Parliament ensured that in practice it is feasible for supervisory authorities to apply streamlined supervisory processes, such as authorisation and validation procedures.
The provisional agreement strengthens cooperation, coordination and information sharing among supervisors and ESMA, while ensuring an appropriate division of tasks between national authorities and ESMA.
The agreement also strengthens the role of ESMA providing it with a coordination role in emergency situations, while providing clarity that ultimate decision making powers are the responsibility of the national competent authorities.
ESMA will also take the role of co-chair of supervisory colleges together with the relevant national competent authorities, who will keep ultimate decision making powers. Furthermore, ESMA will be informed about and may request to be invited to on-site examinations and provide opinions in an extended range of areas.
The provisional agreement sets a solid active account requirement (AAR) that will require certain financial and non-financial counterparties to have an account at an EU CCP, which includes operational elements such as the ability to handle the counterparty’s transactions at short notice if need be and activity elements so that the account is effectively used.
This is ensured by a number of requirements, which have to be fulfilled by these accounts, including requirements for counterparties above a certain threshold to clear trades in the most relevant sub-categories of derivatives of substantial systemic importance defined in terms of class of derivative, size and maturity. Furthermore, a Joint Monitoring Mechanism is created to keep track of this new requirement.
Next steps
The provisional political agreement is subject to approval by the Council and the Parliament before going through the formal adoption procedure and entering into force.
Background
Derivatives play an important role in the economy, but they also bring certain risks. This was demonstrated during the 2008 financial crisis, when significant weaknesses in the OTC derivatives markets became evident.
In 2012 the EU adopted the European market infrastructure regulation (EMIR). The aim was to:
- increase transparency in the OTC derivatives markets
- mitigate credit risk
- reduce operational risk
The Commission presented a proposal on 7 December 2022 to review European market infrastructure regulation and directive in order to make our clearing landscape more attractive. The review aims at:
- streamlining and shortening procedures for authorities to approve new activities or services as well as changes to risk models for CCPs, to make them more attractive to market participants
- improve consistency between rules for banks and other pieces of financial sector legislation. This aims at allowing also e.g. insurance companies and funds to benefit from incentives (such as lower capital requirements) when clearing through an EU CCP
- strengthening CCP supervision by establishing joint supervisory teams for certain tasks, facilitating the monitoring of cross-border risks to the EU throughout the clearing chain by the EU authorities that are part of the EU system of financial supervision and giving emergency powers to ESMA’s CCP supervisory committee
- requiring market participants subject to a clearing obligation to clear a portion of the products that have been identified by ESMA as of substantial systemic importance through active accounts at EU CCPs
- enhancing powers of banks’ and investment firms’ supervisors to address concentration risk form exposures to CCPs
- simplifying equivalence assessments under EMIR where risks involved in clearing in a third country are particularly low
- Council negotiating mandate on EMIR Regulation
- Council negotiating mandate on EMIR Directive
- Capital markets union (background information)
Source – EU Council