The political agreement reached last week in Brussels to implement the EMIR 2.2 regulation has been welcomed on both sides of the Atlantic. The updated regulation will broaden the role of the European Securities and Markets Authority (ESMA) to include more supervisory tools and on-site inspections;introduce a tiered system of recognition for offshore CCPs depending on their product set and systemic importance to the EU; and introduces the requirement that systemically important non-EU CCPs establish themselves in the EU if they seek to access the single market.
In a statement welcoming the agreement, the US Commodity Futures Commission (CFTC) and EU issued a joint statement stressing their commitment to ensuring the implementation of the G20 reforms are effective to achieve the goals of increased financial stability, resilience and transparency in the global transatlantic OTC derivatives market.
“Today’s agreement in the EU regarding new legislation to enhance the supervision of CCPs, with a view to safeguarding the financial stability of the EU and its Member States is part of the EU’s re-assessment of the effectiveness of its implementation of the G20 reforms,” the statement says. “The legislation is in response to the need to monitor changes in the concentration of risk in these infrastructures as well as the departure of the United Kingdom from the EU. As required by the legislation, the EC will shortly adopt a number of delegated acts to define the scope and content of certain provisions, drawing on public consultations and relevant assessments. Before their adoption, these delegated acts will, under the EU’s Better Regulation principles, be subject to a public consultation by the EC to which all stakeholders will be invited to respond, including the CFTC.
“The CFTC has indicated it will participate in the consultation process,” it continues. “The EC will take due consideration of all stakeholder comments received, including any comments submitted by the CFTC, before adopting its legal acts to respond to any legitimate concerns raised by firms and regulators from within the EU and its major derivatives clearing stakeholders in Third Countries. Once these acts are all in force, the European Securities and Markets Authority (ESMA) will apply these new acts.
“We expect the implementation of EMIR 2.2 and the CFTC’s ongoing review of both its swaps regulatory framework and its cross-border approach will result in more deference between the CFTC and the EU supervisors than is currently the case,” the statement concludes.
The agreement was also welcomed, albeit cautiously, by CFTC chair Christopher Giancarlo, who says, “The CFTC recognises the significant step that the EU has taken in reaching agreement on the EMIR 2.2 legislation. It will provide EU authorities with greater ability to monitor and manage the EU’s exposure to systemic risk benefiting all market participants that transact in the EU derivatives markets.
“The United States has informed the European Commission and other EU authorities of a range of concerns regarding the implementation of EMIR 2.2 and its potential impact on US CCPs and the broader US financial markets,| he continues. “We have made clear US expectation that these concerns will be afforded due consideration during the upcoming development of the EMIR 2.2 delegated acts and application of EMIR 2.2.”
Giancarlo observes that while EMIR 2.2 requires a number of implementation steps such that its application US CCPs will likely not take effect until 2021 or beyond, it is understood that during this time EU authorities, including the European Commission and ESMA, will work with the CFTC to address US concerns. “It is understood that the starting point for any future recognition assessment of US CCPs will be the EC’s current 2016 equivalence decision and the recognition decisions made as a product of the agreement between the CFTC and EC in 2016,” Giancarlo states. “This understanding is critical to allow for the continued economic growth, vitality and stability of our transatlantic derivatives markets.”