Shearman & Sterling LLP | Financial Regulatory Developments Focus | European Commission Proposals for a "Location Policy" and Enhanced Supervision of Third Country CCPs
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  • European Commission Proposals for a "Location Policy" and Enhanced Supervision of Third Country CCPs
    The European Commission has published legislative proposals to amend the European Market Infrastructure Regulation and the Regulation establishing the European Securities and Markets Authority. The proposals are on the supervision of CCPs, both EU CCPs and third country CCPs, and include the controversial new proposals for a formal EU "location policy" for CCPs. The main proposals are:
    • To establish a new CCP Executive Session within ESMA, in which central banks of issue, such as the European Central Bank, have a veto over recognition decisions;
    • For EU CCPs, national regulators will supervise CCPs in their jurisdiction in agreement with the CCP Executive Session of ESMA;
    • To introduce a two-tier system for third country CCPs whereby ESMA will categorize each CCP as either a non-systemically important CCP (Tier 1 CCP) or a systemically important CCP (Tier 2 CCP). Tier 1 CCPs will continue to operate under the existing equivalence framework under EMIR. Tier 2 CCPs will be subject to additional requirements, most notably, a line-by-line application of all the prudential, conduct of business, governance and margin requirements that are applicable to EU CCPs;
    • To provide that ESMA may determine that a third country CCP is too systemically important even to operate as a Tier 2 CCP, in which case the Commission could adopt legislation to the effect that the CCP is too systemically important and that it may only provide services in the EU if it establishes itself in an EU member state; and
    • To introduce a system whereby ESMA should assess at least every two years the recognition of a third country CCP, including assessing its systemic importance. Transitional provisions are also proposed whereby CCPs already recognized under EMIR will be reviewed by ESMA on this basis as well.

    The proposals have been submitted to the European Parliament and the Council of the European Union for consideration. The European Commission is accepting feedback on the proposals until August 9, 2017.

    View the proposals and feedback page.