Brussels, 22 June 2022
The European Commission has today adopted two equivalence decisions for central counterparties (CCPs) under the supervision of the People’s Bank of China and the Israel Securities Authority. These decisions determine that the legal and supervisory frameworks for these CCPs are equivalent to the requirements applicable in the EU under the European Market Infrastructure Regulation (EMIR).
Today’s decisions will allow these CCPs to apply for recognition by the European Markets and Securities Authority (ESMA). Once recognised, such CCPs will be able to provide central clearing services in the EU to EU clearing members and trading venues. This follows the recent decisions adopted for CCPs in Malaysia, Chile and Indonesia, amongst others. The Commission adopted these equivalence decisions as they are in the EU’s interest. This will facilitate EU clearing members’ access to these foreign CCPs and to the clearing of products denominated in local currencies. Once third-country CCPs are recognised, EU bank exposures to those CCPs will be subject to lower capital requirements.
The transitional regime of the Capital Requirements Regulation (CRR) – under which EU banks may consider any third-country CCP that has applied for recognition by ESMA as a ‘Qualifying CCP’ – expires on 28 June 2022 for those CCPs that have applied before 27 June 2020. After that date, higher capital requirements apply to EU banks for exposures to non-recognised third-country CCPs. However, as ESMA will not have time to recognise the third-country CCPs by then and, as foreseen under the CRR, EU banks will benefit from a three-month grace period before higher capital requirements apply, unless the relevant banking supervisors exercise their discretion to shorten it.
CCPs are bodies that operate between the buyer and seller of a derivative contract, becoming the buyer to every seller and the seller to every buyer. Their use was encouraged by the G20 following the financial crisis, to reduce risk in derivatives trading. To ensure that its equivalence decisions remain adequate, the Commission reviews them where necessary.
Source – EU Commission