Central counterparties from outside of the European Union may need to establish a presence in the bloc to clear European transactions after the European Commission proposed to amend the European Market Infrastructure Regulation on Tuesday.
Third-party CCPs deemed by Europe's legislator to be “systemically important” will be subject to stricter regulation and could no longer qualify under the equivalence regime, according to the proposed amendment.
“A limited number of systemically important CCPs may be of such systemic importance that the (equivalence) requirements are deemed insufficient to mitigate the potential risks. In such instances, a decision may be taken allowing a CCP to provide services in the union if it is authorized under EMIR and establishes itself in the EU,” the commission said in a news release Tuesday.
By comparison, non-systemically important CCPs will continue to be able to operate under the existing EMIR equivalence framework, the commission added.
Monica Gogna, financial regulation partner at law firm Ropes & Gray, said in an email comment: “This 'two-tier' approach seems to be shifting the balance of power further into the hands of the EU. What is interesting is that, as with many other initiatives recently produced by (European Securities and Markets Authority), the effect is far-reaching to jurisdictions other than the U.K. It is clear that the deluge of regulation from the EU shall continue in this space.”
With the departure of the U.K. from the EU, the CCP risks will be “particularly exacerbated,” as a substantial volume of derivatives transactions denominated in euros are currently cleared via third–party CCPs located in the U.K., according to the European Commission,
The proposal to amend EMIR came as a result of an increased cross-border activity by CCPs and the potential risks to the EU financial system that created, the commission argued.
