23 April 2018

ESMA's Maijoor: Resilience, Recovery and Resolution: three essential Rs for CCPs

We would all agree that European CCPs have become systemically important for the markets they clear and, through their interdependencies, for the European financial system as a whole - albeit some more than others. As for banks and insurance companies, a framework for the resolution of CCPs is needed in order to ensure the continuity of their critical services to preserve financial stability. Therefore, ESMA welcomes the Commission’s proposal for a European framework for the recovery and resolution of CCPs1. As I have said before, CCPs without recovery and resolution plans are like vessels heading for the ocean, but without the lifeboats in place.

My first reflection is that the resolution framework for CCPs should not be considered in isolation, but in conjunction with the regulatory and supervisory framework applying to CCPs..

CCP Resilience, Recovery and Resolution are three essential “Rs” for CCPs, which are strictly interlinked: on the one hand, strong resilience arrangements can reduce the likelihood of the need for recovery and resolution. While, on the other hand, recovery and resolution arrangements should maintain incentives to ensure resilience in the Business-As-Usual (BAU) situation. In my speech today, I would like to share my thoughts on:

i) how to strengthen CCP resilience through ongoing supervision; and

ii) how to ensure that recovery and resolution arrangements support strong CCP resilience.

Regarding EU-CCPs, the Commission proposal retains the current decentralised supervision by the relevant NCAs, but enhances ESMA’s coordination role. For instance, it assigns ESMA the task to chair all CCP colleges and to provide its consent on specific supervisory decisions by a relevant National Competent Authority (NCA) on key CCP risk requirements.

As you are all aware, I can say, with some understatement, that especially when compared with the proposed role regarding TC-CCPs, not all member states are enthusiastic about giving ESMA a more important role in the supervision of EU-CCPs. While understanding some of the concerns, it is important to have the right balance between EU-CCP supervision and TC-CCP supervision. Only in that way can we achieve the envisaged benefits in terms of scale and expertise, and this balance is also needed to ensure the credibility of EU supervision of TC-CPPs. I truly hope that EMIR 2.2 will progress on governance as it has done on improving the arrangements for the role of central banks. Considering the important links between CCPs, financial markets and monetary policy, it is imperative to ensure good cooperation between supervisors and central banks of issue. However, the original Commission proposals entailed the risk of deadlock as on a range of supervisory decisions the relevant national competent authority would have to seek the prior consent of both ESMA and the relevant central banks of issue.

Therefore, I very much welcome the recent amendment proposals being considered by the European Parliament, envisaging other cooperation arrangements, for instance, whereby ESMA would consult the relevant central banks of issue.

I welcome the resolution principles introduced in the proposal for Regulation on CCP Recovery and Resolution, and in particular the condition that any resolution tool based on public financial support to a CCP in resolution should be used as a last resort. Indeed, the proposal provides for a very rich set of resolution tools that should generally allow resolution authorities to handle both default and non-default scenarios without the need to rely on taxpayers’ money.

Full speech

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