Shearman & Sterling LLP | Financial Regulatory Developments Focus | European Securities and Markets Authority Opines on Supervisory Approach for CCPs’ Service Extension 
Financial Regulatory Developments Focus
  • European Securities and Markets Authority Opines on Supervisory Approach for CCPs’ Service Extension 
    The European Securities and Markets Authority published an Opinion outlining a common supervisory approach for regulators dealing with central counterparties that seek to extend or change their existing authorization under the European Market Infrastructure Regulation or to adopt a significant change to their risk model and parameters. The purpose of the Opinion is to build a common supervisory culture by creating uniform procedures and consistent approaches throughout the EU. EMIR requires a CCP wishing to extend its business to additional products and services not covered by its initial authorization to apply to its regulator for an extension, and to obtain validation before adopting any significant changes to its risk model and parameters. EMIR does not define or specify what “additional services and activities” are, nor the notion of “significant change.” The Opinion provides indicators to assist regulators to identify when a change is significant and to seek the college’s opinion, as required by EMIR, on the extension of services and activities. The college is made up of EU regulators and ESMA. For example, ESMA considers that any service or activity (including services linked to clearing) that exposes a CCP to new or increased risk as well as any such services in respect of a class of financial instruments with a different risk profile or with material differences from the products currently cleared by a CCP shall be considered additional. The Guidelines provide a non-exhaustive list of indicators regulators should consider when determining whether changes to a CCP’s models or parameters are significant. For example, if the introduction of one or more new products or services that do not materially differ from the ones that the CCP in question is already authorized to clear or provide, are based on a new set of risk factors and/or involve the development or implementation of new fault or stress scenarios, this would indicate the existence of significant change. The regulator must consider the opinion of the college in accordance with the procedures outlined in EMIR.

    View ESMA’s Opinion.