European Securities and Markets Authority Publishes Advice on Fines and Penalties for Third-Country CCPs03/31/2020The European Securities and Markets Authority has published its final technical advice to the European Commission on procedural rules for imposing fines and penalties on third-country CCPs and trade repositories. The technical advice also covers the alignment of the rules with those applicable to EU credit rating agencies, which ESMA directly supervises. The European Commission mandated ESMA to produce the technical advice in response to changes made to the European Market Infrastructure Regulation by EMIR Refit and EMIR 2.2. EMIR Refit updated (amongst other things) the requirements applicable to trade repositories, including with respect to fines and penalties. EMIR 2.2 introduced investigatory and supervisory powers over CCPs for ESMA to ensure compliance with the new requirements, including the ability to request information from CCPs, appoint an independent investigation officer to investigate any possible infringements under EMIR 2.2 and impose fines.
ESMA’s proposals on fines and penalties take account of responses received to ESMA’s December 2019 consultation on the topic. The areas covered by the proposals include:
- the right of the person subject to an investigation to be heard by the independent investigation officer – ESMA has set out proposals in this regard for third-country CCPs but has not proposed any amendment to the rules applicable to trade repositories;
- the content of the file to be submitted by the independent investigation officer – ESMA has suggested a minimum set of documents to be included in the files submitted for third-country CCPs, and for investigation officers conducting investigations into trade repositories to include a copy of their statement of findings in the files they submit to ESMA;
- the procedure for imposing fines and for periodic penalty payments - ESMA has proposed alignment of the rules for third-country CCPs with the existing rules for trade repositories and credit rating agencies;
- the procedure for adopting interim decisions when urgent action is needed – ESMA considers that the procedure for adopting interim decisions for third-country CCPs should consist of two stages: the first stage would lead to the adoption of an interim decision without the person concerned submitting comments to ESMA; the second stage would lead to a confirmatory decision on whether to adopt the first decision, at which point the person concerned would have the opportunity to submit comments. ESMA also considers that similar amendments should be made to the rules applicable to trade repositories; and
- the limitation period for enforcement of penalties – ESMA aims to ensure consistency between the rules applicable to third-country CCPs and trade repositories under EMIR, but has pressed ahead with implementing a longer limitation period of eight years for third-country CCPs (as opposed to the five years applicable to Member State trade repositories); it remains to be seen whether this longer limitation period will lead to difficulties due to shorter record keeping requirements in other jurisdictions.
Other areas covered by the proposals are: (i) access to the file of persons subject to the investigation; (ii) the collection of fines and penalties; and (iii) the relevant calculation periods. A noteworthy omission from ESMA’s final technical advice is its non-citing of the second half (only) of Recital 48 of EMIR 2.2. This provides that where ESMA has assessed that a Tier 2 CCP in its compliance with its third-country framework is also in compliance with Article 16 and Titles IV and V of EMIR, that CCP’s conduct should not be considered an infringement of EMIR to the extent the CCP complies with its comparable third-country requirements. An omission to refer to this important restriction on enforcement does not render the restriction inapplicable, but its omission raises questions as to why ESMA would seek to draw attention away from these important safeguards.
ESMA also sets out a series of proposed amendments to the Credit Rating Agencies Commission Delegated Regulation, to align it with the changes made to the rules applicable to trade repositories. In particular, these changes cover the need for a copy of the statement of findings of the investigation officer to be included in the file submitted to ESMA, the rules of procedure for the collection of fines and periodic penalty payments and the rules of procedure for the adoption of interim decisions.
The European Commission will now consider whether to adopt a delegated act to implement ESMA’s proposals.
View ESMA's final technical advice.
View details of ESMA's consultation on proposed procedural rules for penalties imposed on third-country CCPs, trade repositories and credit rating agencies.
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