Commission VP Dombrovskis laid out some principles on CCP supervision today and there is not much need to read between any lines!
“And so it makes sense that the EU carries a certain amount of common responsibility for their supervision. This is an issue we are considering, as we further develop our Capital Markets Union and review the functioning of the European Supervisory Authorities….For third country CCPs which play a key systemic role for the EU, we are looking in particular at two possibilities for enhanced supervision: We can ask for enhanced supervisory powers for EU authorities over third country entities. Or such CCPs of key systemic importance for the EU could be asked to be located within the EU. We now need to look at these options in the impact assessment.”
Within a deepening CMU, It will make clear sense for ESMA to be the direct regulator of the small number of EU-based CCPs.
For a post-Brexit UK – as a `third country’ - the implications are equally clear:
o Enhanced EU supervisory powers over a UK-based CCP: Will the Leavers agree to such an oversight when it must carry with it a submission to the ECJ’s jurisdiction? Moreover, the ECB’s location policy statement after the Referendum made clear that the supervisor has to have the power to “induce change”. The Leavers’ demands to “take control” make it difficult to see this option being acceptable to the current UK Government.
o “...could be asked to be located within the EU…” seems to leave open the possibility of clearing remaining in London if it is part of the EU but if the request to re-locate is refused, then what?? It would be surprising if the Eurozone were willing to let its monetary institution – the ECB – take the risk of advancing enormous quantities of liquidity in a crisis to a CCP over which it had no supervisory power. Once the CCP’s customers realise the implications, they might well prefer to deal with a CCP that could rely on emergency support in a crisis.
NOTE: these issues were discussed in detail in my report “Euro “clearing”: Liability and Location” of 15h January 2017. Available to consultancy clients here; Friends here or contact email@example.com to request a copy.
© Graham Bishop
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