Brussels: Europe and the Arabs
The Council of Member States and the European Parliament reached an interim political agreement today on reviewing the European Market Infrastructure Regulations and Directives. The review aims to make the EU clearance landscape more attractive and flexible, to support the EU's open strategic autonomy and maintain the EU's financial stability.
Vincent Van Petegem, Minister of Finance of Belgium, whose country holds the current rotating presidency of the Union, said:
I am pleased that we have reached agreement today on the review of the European market infrastructure rules. This would bring more clearing services to Europe and enhance our strategic independence. It will also contribute to stabilizing the market and ensuring that it operates efficiently, which is a prerequisite for a full capital markets union.
The European Market Infrastructure Regulation (EMIR) sets rules on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories. The proposed EMIR revision contains several legislative measures to improve clearing services in the EU, in particular by simplifying and shortening procedures, improving consistency between rules, strengthening CCP supervision and requiring market participants of significant system importance, who are subject to the clearing obligation, to have a role. Operational. An active account with CCP in the European Union.
Main elements of the interim agreement
The Council and Parliament emphasized that it is practically possible for supervisory authorities to implement simplified supervisory processes, such as licensing and verification procedures.
The interim agreement works to enhance cooperation, coordination, and information exchange between regulatory authorities and the Standards and Metrology Supervision Authority, while ensuring the appropriate division of tasks between national authorities and the Standards and Metrology Monitoring Authority.
The agreement also strengthens the role of the Monitoring Body for Standardization and Metrology and provides it with a coordination role in emergency situations, while providing clarity that final decision-making powers are the responsibility of the competent national authorities.
SASO will also assume the role of co-chair of the supervisory colleges together with the relevant national competent authorities, which will retain final decision-making powers. Furthermore, ESMA will be informed and may be invited to conduct on-site tests and provide opinions in a wide range of areas.
The Interim Agreement sets out a strong Active Account Requirement (AAR) which will require certain financial and non-financial counterparties to have an account at an EU central clearing centre, which includes operational elements such as the ability to handle counterparty transactions at short notice if necessary. and activity elements so that the account is used effectively.
This is ensured by a number of requirements, which must be met by these calculations, including requirements for counterparties exceeding a certain threshold to liquidate trades in the most relevant subcategories of derivatives of significant system importance defined in terms of derivative class, size and maturity. Furthermore, a joint monitoring mechanism has been established to track this new requirement.
Next steps
The interim political agreement is subject to the approval of the Council and Parliament before going through official approval procedures and entering into force.
Financial derivatives play an important role in the economy, but they also carry some risks. This was demonstrated during the 2008 financial crisis, when significant vulnerabilities in over-the-counter derivatives markets became apparent.
In 2012, the European Union adopted the European Market Infrastructure Regulation (EMIR). The goal was:
Increase transparency in OTC derivatives markets
Credit risk mitigation
Reducing operational risks
The Commission tabled a proposal on 7 December 2022 to review the European Market Infrastructure Regulation and Directive in order to make our clearance landscape more attractive. The review aims to:
Simplifying and shortening procedures for authorities to approve new activities or services, as well as changes in CCP risk models, to make them more attractive to market participants
Improving consistency between banking rules and other financial sector legislation. This is intended to also allow e.g. Insurers and funds to benefit from incentives (such as lower capital requirements) when clearing through the EU CCP
Strengthening CCP supervision by establishing joint supervisory teams for specific tasks, facilitating the monitoring of EU cross-border risks throughout the clearing chain by EU authorities forming part of the EU financial supervision system and granting emergency powers to the CCP Supervisory Committee of ESMA.
Requiring market participants subject to the clearing obligation to clear a portion of products identified by the SEC as being of significant system importance through active accounts at EU central control points
Strengthening the powers of banks and investment companies