22 October 2021

CCP SUPERVISORY COMMITTEE CHAIR DELIVERS KEYNOTE SPEECH AT THE SECOND EACH CCP RISK MANAGEMENT SUMMIT

The Chair of ESMA’s CCP Supervisory Committee, Klaus Löber, today delivered a keynote speech on the role of CCPs in supporting the safety and efficiency of global financial markets.

CCPs play a very specific and rather technical role in supporting the safety and efficiency of financial markets across the globe. They are highly sophisticated risk management and allocation tools, which rely on a specialised and small community of risk experts, many of whom I have the pleasure of addressing today.
• The close interdependencies between FMIs and the concentration of business within a select group of CCPs make it necessary to have a holistic and global perspective to the risks that these institutions may be posing. As CCPs expand their services across markets, currencies and participants in multiple jurisdictions, there is a strong cross-jurisdictional element coming into play, not the least through cross-border linkages with clearing participants, trading venues and settlement systems.
• Against this background, a close cooperation between relevant authorities is becoming ever more essential to ensure that the risks in CCPs are adequately managed, in good and bad days, with a view to minimising systemic risk and spill-over effects across jurisdictions.
• Cooperation and coordination require high levels of trust and transparency among relevant actors to allow for a swift and
21 October 2021
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efficient reaction in crises, as well as to identify and address emerging risks early on.
• One of the best-known forms of cooperation for the supervision of CCPs are CCP colleges. In the EU, the mandatory EMIR CCP colleges are further strengthened by the CCP Supervisory Committee, which is tasked to foster and enhance supervisory convergence in the EU.
• Of course, major CCPs are a global phenomenon. In this respect, global colleges are essential to foster efficient and effective communication across authorities to support each other in fulfilling their respective mandates. I am pleased to see that the relevant authorities in the EU as well as the UK are aligned in pushing for the set-up of global supervisory colleges, where relevant, to support information sharing and supervisory cooperation among relevant authorities.
• Cooperation is not without difficulties, as one needs robust arrangements that establish workable frameworks for the exchange of non-public supervisory information. It is in this spirit that ESMA is currently reviewing and negotiating MoUs with 15 jurisdictions to improve the exchange of information on market and regulatory developments, so that risks can be better anticipated and addressed.
• This brings us to the question whether there may be limits to what can be achieved by cooperative arrangements and colleges. The size of certain CCPs and their exposures - both in terms of clearing participants and currencies cleared - can be critical, meaning that any disruption at these CCPs may have significant ripple effects for financial stability.
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• In the vast majority of cases, CCPs are located within the same jurisdiction as the key market that they serve and, by implication, as their main supervisor. The EU is in a rather unusual situation as, after Brexit, key CCPs of relevance to EU financial institutions and currencies have become offshore. This requires additional reflections about how risks for EU CMs, currencies and markets can be appropriately identified and mitigated.
• Addressing some of these concerns, EMIR 2.2 established the CCP SC and granted ESMA additional powers to assess and categorize third-country CCPs depending on their systemic importance for the financial stability of the Union or of one or more of its Member States.
• As you know, ESMA determined last year that LCH Ltd. and ICE Clear Europe are considered systemically important (so-called Tier 2), subjecting them to direct supervisory control and ongoing compliance with EMIR-requirements.
• The objective is to have direct access to the CCPs to monitor risks and to be able to review key decisions of the CCPs, such as the extension of services or significant changes to risk models.
• ESMA has established this direct supervision, acting in close cooperation with the Bank of England, since the beginning of this year. This also means that the two UK CCPs are now included in our current regular stress-testing exercise.
• I am aware that many of you are interested in the ongoing review exercise conducted by the CCP SC and ESMA. As you know, the current recognition of UK CCPs is temporary and is scheduled to expire on 30 June 2022, at the same time as the European Commission’s equivalence decision.
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• Under EMIR 2.2, ESMA is required to undertake a comprehensive assessment of the risks to financial stability of the Union, its Member States, currencies, clearing members and clients, to determine whether the existing EMIR regulatory and supervisory toolkit suffices to address these risks and to consider the costs, benefits and consequences of a potential decision not to recognise a CCP or certain of its services.
• This technical assessment and cost-benefit analysis is built on a thorough methodology, which ESMA has made public in July 2021. The risk assessment builds on indicators to determine substantial systemic importance, including amongst other things, the size of credit and liquidity exposures of EU participants and their potential non-prefunded losses.
• The assessment against these indicators is based on data and information collected from a variety of sources and stakeholders, including EU and TC-CCPs, clearing members, clients, trading venues, but also the public sector - National Competent Authorities, Central Banks, the ESRB and other European institutions....

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