Capital markets Union: Council reaches agreement on improvements to EU clearing services

The Council adopted today a mandate to start negotiations with the European Parliament on a review of the European market infrastructure regulation and directive. The review aims to make the EU clearing landscape more attractive and resilient, to support the EU’s open strategic autonomy and to preserve the EU’s financial stability.

The European Market Infrastructure Regulation (EMIR) lays down rules on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories. The proposed EMIR review contains several legislative measures to improve EU clearing services, notably by streamlining and shortening procedures, improving consistency between rules, strengthening CCP supervision and requiring market participants subject to a clearing obligation to clear a portion of the products, which have been identified by ESMA as of substantial systemic importance, through active accounts at EU CCPs.

Main changes brought by the Council

The Council ensured that in practice it is feasible for supervisory authorities to apply streamlined supervisory processes, such as authorisation and validation procedures.

It strengthened the role of supervisory frameworks, while ensuring an appropriate division of tasks between national authorities establishing coordination at European level, in particular by establishing a Joint Monitoring Mechanism and providing ESMA with a coordination role in cross-border emergency situations.

The Council set a solid active account requirement (AAR) that will require certain financial and non-financial counterparties to have an account at an EU CCP, which includes operational elements such as the ability to handle the counterparty’s transactions at short notice if need be and activity elements so that the account is effectively used. This is ensured by a number of requirements, which have to be fulfilled by these accounts, including requirements for counterparties above a certain threshold to clear trades in the most relevant sub-categories of derivatives of substantial systemic importance defined in terms of class of derivative, size and maturity.

Background and next steps

Derivatives play an important role in the economy, but they also bring certain risks. This was demonstrated during the 2008 financial crisis, when significant weaknesses in the OTC derivatives markets became evident.

In 2012 the EU adopted the European market infrastructure regulation (EMIR). The aim was to:

• increase transparency in the OTC derivatives markets
• mitigate credit risk
• reduce operational risk

The Commission presented a proposal on 7 December 2022 to review European market infrastructure regulation and directive in order to make our clearing landscape more attractive. The review aims at:

• streamlining and shortening procedures for authorities to approve new activities or services as well as changes to risk models for CCPs, to make them more attractive to market participants
• improve consistency between rules for banks and other pieces of financial sector legislation. This aims at allowing also e.g. insurance companies and funds to benefit from incentives (such as lower capital requirements) when clearing through an EU CCP
• strengthening CCP supervision by establishing joint supervisory teams for certain tasks, facilitating the monitoring of cross-border risks to the EU throughout the clearing chain by the EU authorities that are part of the EU system of financial supervision and giving emergency powers to ESMA’s CCP supervisory committee
• requiring market participants subject to a clearing obligation to clear a portion of the products that have been identified by ESMA as of substantial systemic importance through active accounts at EU CCPs
• enhancing powers of banks’ and investment firms’ supervisors to address concentration risk form exposures to CCPs
• simplifying equivalence assessments under EMIR where risks involved in clearing in a third country are particularly low