On January 16, the European Securities and Markets Authority (ESMA) and the Securities and Futures Commission (SFC) of Hong Kong agreed on a Memorandum of Understanding (MoU) regarding regulatory cooperation and arrangements for ESMA’s continued monitoring of the on-going compliance with the recognition conditions established in Article 25 of the European Markets Infrastructure Regulation (EMIR) for central counterparties (CCPs).
Any CCP outside of the European Union that wishes to provide clearing services to clearing members or trading venues established in the European Union must become recognized by ESMA as a Covered CCP. For the recognition process to commence, ESMA must have first made an equivalence determination for the non-EU jurisdiction, i.e. that the relevant non-EU jurisdiction has an equivalent legal and supervisory framework to that of EMIR. ESMA made an equivalence determination for Hong Kong on October 30, 2014. Details of the ESMA equivalence determination were reported in the Corporate and Financial Weekly Digest edition of October 31, 2014 (“European Commission Adopts First Equivalence Decisions for Non-EU CCPs”), which can be found here.
Article 25 of EMIR requires that a cooperation arrangement be put in place between ESMA and the applicable non-EU regulator and that ESMA be given sufficient tools to monitor the Covered CCP’s on-going compliance with the recognition conditions. The MoU states that ESMA does not expect to conduct any on-site visits of the Covered CCP unless an exceptional circumstance should arise. Additionally, the MoU provides that domestic banking secrecy or blocking regulation will not prevent ESMA from continually monitoring the Covered CCP.
The MoU is effective as of December 19, 2014. A copy of the MoU can be found here.