The European Commission has published a memorandum detailing how the recognition procedure for central counterparties (CCPs) established outside the EU and wishing to provide services to market participants established in the EU will be implemented.

Clearing members established in the EU, i.e. legal persons incorporated under the law of an EU Member State, will only be able to use non-EU CCPs if they have been recognised under EMIR.  Accordingly, EU clearing members accessing non-EU CCPs through local branches will only be able to continue to do so if those non-EU CCPs are recognised under EMIR.  As EMIR only applies to entities established in the EU, this does not apply when EU banking groups access non-EU CCPs through local subsidiaries.  In contrast to local branches, these local subsidiaries are not considered as EU clearing members. 

Benefits of Recognition under EMIR

There are a number of benefits of recognition including:

  • Recognised non-EU CCPs will be able to continue providing services to EU clearing members and trading venues whilst remaining exclusively subject to their domestic legal and supervisory framework.  Recognition in the EU does not imply the application of any additional obligation under EU law and the EU fully relies on the application of domestic rules considered as equivalent and their enforcement by domestic authorities
  • Recognised non-EU CCPs will be able to benefit from the application of the clearing obligation in the EU, as EU counterparties subject to the clearing obligation will be obliged to use either CCPs authorised in the EU or non-EU CCPs recognised under EMIR to fulfil this obligation
  • EMIR recognition has implications on the capital treatment of EU banks’ exposures to CCPs under the Basel III rules.  Only non-EU CCPs recognised under EMIR will meet the conditions necessary to be considered as “qualified CCPs”.  As capital requirements are applied to EU banks on a consolidated basis, this will have an impact on the exposure of branches or subsidiaries of EU banks to non-EU CCPs

Recognition Procedure

The main conditions for recognition are:

  • The EU has adopted a positive equivalence decision with regard to the regulatory framework applicable to CCPs in the home country
  • The CCP is authorised and subject to effective supervision and enforcement in its home country
  • The CCP is established/authorised in a third country considered as having equivalent systems in respect of anti-money laundering and combating the financing of terrorism to those of the EU
  • Co-operation arrangements have been established between ESMA and the domestic supervisory authorities of the non-EU CCP

The adoption of a positive equivalence decision and the application for recognition by the non-EU CCP will run parallel.  ESMA assesses the application for recognition and establishes the relevant co-operation arrangements, while the Commission prepares and adopts equivalence decisions for each foreign jurisdiction. To enable the preparation of equivalence decisions, the Commission has asked ESMA to provide technical advice on the supervisory framework applicable in third-countries.  ESMA’S advice on the US and Japanese regimes is due on 1 September 2013 and its advice on other third-countries is due on 1 October 2013.

Timeline

Recognition under EMIR must be applied for within six months of the date of entry into force of EMIR implementing rules (regulatory technical standards).  These standards entered into force on 15 March 2013, therefore relevant non-EU CCPs must apply for recognition to ESMA by 15 September 2013.

Recognition Decision

ESMA must make a decision on recognition within 9 months of the receipt of a complete application.  Until such time as ESMA makes its decision, non-EU CCPs (applying for recognition before 15 September 2013) may continue to provide services to EU clearing members that are already active on those CCPs.