COURT RULES IN FAVOUR OF THE UK AGAINST THE ECB ON LOCATION OF CENTRAL COUNTERPARTIES FOR CLEARING OF SECURITIES TRANSACTIONS
On 4 March 2015, the General Court (Court) annulled the ECB’s Eurosystem Oversight Policy Framework (Policy) dated 5 July 2011 insofar as it stated a requirement for central counterparties (CCPs) above a certain threshold and involved in the clearing of securities to be located within the Eurozone area. The UK, supported by Sweden, sought an order annulling the Policy. The ECB, supported by Spain and France, opposed the annulment sought. The full judgment can be read here.
The UK contended that the ECB had no competence to regulate the location of CCPs under EU law and therefore the location requirement in the Policy should be annulled. The ECB argued that it had competence to regulate the location of CCPs involved in the clearing of securities pursuant to its objective to promote the smooth operation of payment systems under Article 127(2) of the Treaty on the Functioning of the European Union (TFEU), and its power to make regulations to ensure efficient and sound clearing and payment systems within the EU conferred by Article 22 of Protocol No.4 to the FEU Treaty on the Statute of the ESCB and the ECB (Statute).
As part of the process of clearing securities transactions, the CCP takes the place of both the buyer, who provides liquid assets for the purchase of the securities, and the seller, who transfers the securities that are the subject of the transaction. As such, the Court determined that such a transaction can be divided into a “cash leg” and a “securities leg”. The “cash leg” of a clearing operation involves the payment of funds in consideration for the securities to be transferred and would fall within the definition of a “payment system”. However, the “securities leg” of a clearing operation (i.e. the transfer of the securities) does not involve a payment of funds and hence was held not to constitute a “payment” for the purposes of the relevant provisions of the TFEU and the Statue. The ECB’s power to adopt regulations was deemed to relate to payment clearing systems alone and not to securities clearing systems. Therefore, the ECB did not have competence to require CCPs to be located within the Eurozone.
The ECB also contended that the Policy was not capable of annulment by the Court on the basis that the Policy was merely a policy statement from the ECB and not a document capable of having legal effect. However, the Court ruled that based on the wording, context and substance of the Policy, along with the intention of the ECB in publishing the Policy, the Policy would have reasonably been perceived as having legal effect and hence was capable of being of challenged before the Court.
The Court annulled the sections of the Policy that relate to location requirements of CCPs.
the introduction of a maximum length to a prospectus would be favourable and the effectiveness of the existing liability and sanctions regime. ■ How prospectuses are approved The Commission seeks further information on the different ways in which national competent authorities assess draft prospectuses submitted to them for approval, as well as views on whether the process should be streamlined and/or made more transparent. Submissions are invited on the efficiency of the EU passporting mechanism for prospectuses. The Commission also seeks views on whether an equivalence regime should be established in the EU for third country prospectus regimes. COMMISSION CONSULTS ON SIMPLE, TRANSPARENT AND STANDARDISED SECURITISATION On 18 February 2015, the Commission issued a consultation document (Consultation) on a prospective EU framework for simple, transparent and standardised securitisations. This follows the publication of a discussion paper on 14 October 2014 by the EBA on the same topic (EBA Paper). The Commission considers the development of a highquality securitisation market to be a building block of the Capital Markets Union and would contribute to its objective to return to sustainable economic growth and job creation. The Commission recognises the importance of securitisation as a means of relieving pressure on bank balance sheets and releasing capital for further lending. A strong securitisation market would also diversify sources of funding in the EU and allocate risk efficiently within the financial system. The Commission observes that unlike in the United States, EU securitisation markets have remained subdued since the beginning of the financial crisis, despite realised losses on EU-issued instruments having been low compared to those issued in the United States. In an attempt to revive the EU’s stagnant securitisation markets, it is proposed that a legislative framework is established, whereby “qualifying” securitisations, which are “high-quality” securitisations defined by their simplicity, transparency and standardisation, will receive more generous regulatory treatment than other securitisations, including in terms of capital treatment. These “qualifying” securitisations will for the most part be defined as “high-quality” in terms of the process by which they are created and the structure that they take, rather than in terms of the credit quality of underlying assets (although if the approach suggested in the EBA Paper is adopted, “qualifying” securitisations will also meet certain minimum criteria in terms of credit quality). In the Consultation the Commission invites input on a wide range of issues including: ■ The criteria that should be applied in determining “qualifying” securitisations ■ Whether current risk retention rules should be adjusted for “qualifying” instruments ■ The expected impact of standardisation of the structuring of instruments on the EU securitisation markets ■ The balance to be struck between the amount of high-quality information required by investors and the streamlining of disclosure obligations for issuers/ originators ■ Whether existing capital requirements under the Capital Requirements Regulation adequately reflect the risks attached to securitised instruments ■ How rules on capital requirements should differ between “qualifying” securitisations and other securitisation instruments ■ How the institutional investor base for EU securitisation could be expanded The deadline for comments on the Consultation is 13 May 2015. The Consultation forms part of the Commission’s wider work on building a Capital Markets Union. Please contact firstname.lastname@example.org for further information.