A new Regulation amending the European Market Infrastructure Regulation has been published in the Official Journal of the European Union, introducing changes to the procedures and authorities involved in the authorization of central counterparties and the requirements for the recognition of third-country CCPs. The Regulation, known as “EMIR 2.2”, is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance. The legislative process relevant to EMIR 2.2 has taken place with the U.K.’s exit from the European Union in the background (which is currently expected to take place on January 31, 2019). Many of the changes relevant to third-country CCPs are effectively a response to the U.K.’s decision to leave the EU, given that two of the three largest European Union clearing houses are U.K.-based. The Regulation will enter into force and apply directly in all Member States from January 1, 2020. Separately, EMIR 2.1 or “EMIR Refit” was published in the Official Journal of the European Union in May 2019, and introduced a technical improvements to other aspects of EMIR. The U.K. has since published draft legislation for its post-Brexit onshoring of EMIR 2.1.
Key changes under the EMIR 2.2 amendments include:
- Granting ESMA a coordination role between national regulators and across supervisory colleges to promote increased supervisory cooperation and ensure uniform procedures and consistent approaches are applied to authorized CCPs;
- Establishment of a permanent ESMA internal CCP Supervisory Committee, that will conduct activities such as peer reviews of the authorization and supervision of CCPs carried out by national regulators, coordinating at least annual EU-wide assessments of the resilience of CCPs and promoting discussion between national regulators of their supervisory activities and decisions with regards to CCPs;
- Introduction of new categories of “Tier 1” CCPs (i.e. non-systemically important CCPs) and “Tier 2” CCPs (i.e. systemically important CCPs, as determined by ESMA in consultation with the European Systemic Risk Board and central banks) for third country CCPs that apply for recognition in the EU; Tier 2 CCPs will be subject to higher recognition requirements based on ongoing compliance with prudential requirements for EU CCPs, compliance with requirements of the CCP’s central bank of issue and provision of a written statement by the CCP that it consents to ESMA’s accessing its records, rather than “equivalence”;
- Powers for the ESMA, in consultation with the European Systemic Risk Board and central banks, to recommend that a Tier 2 CCP poses such a degree of risk to the stability of the EU that it should not be recognized as equivalent to an EU CCP; this would mean that such CCPs would either need to relocate to within the EU or cease to provide clearing services into the EU;
- Introduction of investigatory and supervisory powers for ESMA to ensure compliance with the new requirements, including the ability to request information from CCPs, conduct necessary investigations of Tier 2 CCPs, appoint an independent investigation officer to investigate any of the possible infringements set out under EMIR 2.2 and impose fines up to twice the amount of the profits gained or losses avoided through the breach, or up to 10% of the total annual turnover of a legal person in the previous business year (subject to certain adjustments for mitigating or aggravating factors and not exceeding in total 20% of the annual turnover of the CCP in the preceding business year); and
- Introduction of a new supervisory role for the European Central Bank including a seat on colleges where it is the competent authority responsible for the supervision of a CCP’s clearing member, and will have two votes where it is part of the college as a central bank of issue and as the competent authority of a clearing member.
Various of the technical standards under EMIR 2.2 have already been consulted upon by ESMA, including on tiering, comparable compliance and fees for third-country CCPs.