EUROPEAN COMMISSION Brussels, 7.12.2022 COM(2022) 697 final 2022/0403(COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets (Text with EEA relevance) {SEC(2022) 697 final} - {SWD(2022) 697 final} - {SWD(2022) 698 final}



EXPLANATORY MEMORANDUM 1.CONTEXT OF THE PROPOSAL •Reasons for and objectives of the proposal Regulation (EU) No 648/2012 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). CCPs take on the risks faced by the parties to a trade, becoming the buyer to every seller and the seller to every buyer. By doing so, they increase market transparency and efficiency and reduce the risks in financial markets, especially for derivatives. EMIR was adopted in the wake of the 2008/2009 financial crisis to promote financial stability and to make markets more transparent, more standardised, and thus safer. EMIR requires that derivatives transactions are reported to ensure market transparency for regulators and supervisors and that their risks are appropriately mitigated through central clearing at a CCP or by exchanging collateral, known as ‘margin’, in bilateral transactions. CCPs, and the risks they manage, have grown considerably since the adoption of EMIR. In 2017, the Commission published two legislative proposals amending EMIR, both of which were adopted by the co-legislators in 2019. EMIR REFIT recalibrated some of the requirements under EMIR to ensure their proportionality, while ensuring financial stability. Acknowledging the emerging issues related to the increasing concentration of risks in CCPs, in particular third-country CCPs, EMIR 2.2 revised the supervisory framework and set out a process for assessing the systemic nature of third-country CCPs by the European Securities and Markets Authority (ESMA) in cooperation with the European Systemic Risk Board (ESRB) and the central banks of issue. EMIR is complemented by the CCP Recovery and Resolution Regulation, adopted in 2020, to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. Whilst EMIR has established a robust framework for central clearing, certain areas of the current supervisory framework have proven overly complex. This limits EU CCPs’ ability to attract business both within the EU and internationally. The supervisory approval procedures for launching new clearing services and activities by EU CCPs, as well as changes in their risk models, are in many cases unnecessarily long and burdensome. The current rules are there to ensure the safety and soundness of EU CCPs, but this could be done in many ways and the existing processes have been challenged as too slow and, at times, disproportionate in light of the envisaged change. It should not take years for approving a new product, and changes to risk models need to be swift to reflect changing market and economic circumstances. Delays in approvals increase costs and reduce the attractiveness of EU CCPs, and consequently of the EU as a place to do business. The proposal aims at mitigating these obstacles in order to foster modern and competitive CCPs in the EU that can attract business. EMIR provides a comprehensive and robust prudential framework for CCPs and the newly adopted CCP Recovery and Resolution Regulation further strengthens the soundness of EU CCPs. This proposal aims for the EU to continue to base the evolution of its central clearing ecosystem on the strength of its rules and supervision. Robust and safe CCPs enhance the trust of the financial system and crucially support the liquidity of key markets. A safe, robust and resilient clearing ecosystem is a pre-condition for it to grow further. The EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. In this way, central clearing will support the EU economy. This proposal aims to put firms in a better position by being able to predict the liquidity needs associated with central clearing. A competitive and efficient EU clearing ecosystem will increase central clearing activities, but central clearing also entails risks by centralising transactions in a few CCPs being financially systemically important. Hence, those risks must be appropriately managed by CCPs and CCPs must continue to be thoroughly supervised both at the national and the wider EU level. Therefore, this proposal aims at ensuring a robust and joined-up supervision, building on the supervisory system the EU currently has in place. In addition, since 2017, concerns have been repeatedly expressed about the ongoing risks to the EU financial stability arising from the excessive concentration of clearing in some third-country CCPs, notably in a stress scenario. High-risk but low-probability events can happen, and the EU must be prepared to face them. While EU CCPs have generally proven resilient, experience has shown that the EU clearing ecosystem can be made stronger, to the benefit of financial stability. However, open strategic autonomy also means that the EU needs to safeguard itself against the financial stability risks which can arise when EU market participants are excessively reliant on third-country entities, as this can be a source of vulnerability. Therefore, this proposal aims at making the equivalence framework in EMIR more proportionate and to better tailor cooperation with foreign supervisors taking into account the risks posed by CCPs based in third countries – and without compromising on the need for third countries to have sound rules in place. It is also proposed that the equivalence procedure is made simpler when the risks involved in central clearing in a third country are particularly low. In addition, this proposal seeks to build up the EU’s central clearing capacity and thereby increase liquidity at EU CCPs with the aim to reduce the risks posed to the EU financial stability by excessive exposures to third-country CCPs. Therefore, this proposal requires all market participants subject to a clearing obligation, to hold active accounts at EU CCPs for clearing products that have been identified by ESMA as of substantial systemic importance for the EU financial stability. This proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU (Undertakings for Collective Investment in Transferable Securities Directive or ‘UCITS Directive’) as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. These amendments are necessary to ensure that the objectives of this EMIR review are achieved as well as to assure coherence. The two proposals should therefore be read in conjunction. •Consistency with existing policy provisions in the policy area This proposal is related to, and consistent with, other EU policies and ongoing initiatives that aim to (i) promote the Capital Markets Union (CMU) , (ii) reinforce the EU’s open strategic autonomy and (iii) enhance the efficiency and effectiveness of EU-level supervision. First, clearing capacity is an important dimension for the CMU. The CMU is about building deep and liquid EU capital markets that can serve the needs of EU citizens, businesses and financial institutions. The Covid-19 crisis has made it more urgent to deliver on CMU as market-based financing is an essential component for the European economy’s recovery and the return to long-term growth. Safe, robust and competitive post-trade arrangements, in particular central clearing, in the EU is essential for a well-functioning CMU. The proposed legislative changes, including to further strengthen the supervisory framework, would contribute to the development of a more efficient and safer post-trading landscape in the EU. Second, competitive, well-developed and resilient EU CCPs are a pre-condition for the EU’s open strategic autonomy. The Commission Communication on open strategic autonomy sets out how the EU can reinforce its open strategic autonomy in the macro-economic and financial fields by, in particular, but not only, further developing EU financial market infrastructures and increasing their resilience. Building a strong EU central clearing system with robust capacity reduces risks stemming from excessive reliance on third-country CCPs and their supervisors. Third, recent developments in energy markets, with several energy companies facing liquidity issues when using derivatives markets, have also illustrated that EMIR needs to be enhanced so that the risks to the EU’s financial stability continue to be mitigated in light of new challenges. This means building a safe, robust and competitive EU central clearing ecosystem, able to withstand economic shocks. •Consistency with other Union policies This initiative should be viewed within the context of the broader Commission agenda to make the EU markets safer, more robust, more efficient and competitive. It aims at ensuring that post-trade arrangements, in particular central clearing, that are an essential element of capital markets are equally safe, robust, efficient and competitive. A fully functioning and integrated market for capital will allow the EU’s economy to grow in a sustainable way and be more competitive, in line with the strategic priority of the Commission for an Economy that Works for People, focused on creating the right conditions for job creation, growth and investment. The initiative in question has no direct and/or identifiable impacts leading to significant harm or affecting the consistency with the climate-neutrality objectives and the obligations of the European Climate Law.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY •Legal basis EMIR sets out the regulatory and supervisory framework for CCPs established in the EU and third-country CCPs that provide central clearing services to clearing members or trading venues established in the EU. The legal basis for EMIR is Article 114 of the Treaty of the Functioning of the European Union (TFEU) as it establishes common rules for OTC derivatives, CCPs and trade repositories to avoid divergent national measures or practices and obstacles to the proper functioning of the internal market while ensuring financial stability. Considering that this initiative proposes further policy actions to ensure the achievement of these objectives, the related legislative proposal would be adopted under the same legal basis. •Subsidiarity (for non-exclusive competence) The problems identified in the impact assessment cannot be addressed by Member States acting alone and necessitate EU action. This proposal amends EMIR, in particular to enhance the attractiveness of EU CCPs by facilitating their ability to bring new products to market and reducing compliance costs and strengthening EU-level supervision of EU CCPs. EU action would therefore lead to reducing EU’s excessive reliance on third-country CCPs and thus reduce the risks to EU financial stability. A safe, robust, efficient and competitive market for central clearing services contributes to deeper, more liquid markets in the EU and is essential for a well-functioning CMU. Member States and national supervisors cannot on their own solve the systemic risks of highly integrated and interconnected CCPs that operate on a cross-border basis beyond the scope of national jurisdictions. Nor can they mitigate risks arising from diverging national supervisory practices. Member States also cannot on their own enhance the attractiveness of EU CCPs and address the inefficiencies of the framework for the cooperation of national supervisors and EU authorities. As such, the aim of EMIR to increase the safety, robustness, efficiency and competitiveness of EU CCPs in the single market and ensure financial stability cannot be sufficiently achieved by Member States, as the co-legislators acknowledged in 2012 when adopting EMIR (and in 2019 when adopting EMIR REFIT and EMIR 2.2). Therefore, by reason of the scale of actions, these objectives can be better achieved at EU level in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. •Proportionality The proposal aims to ensure that the objectives of EMIR are met in a proportionate, effective and efficient manner. Given the nature of this proposal, there is a key trade-off between the effectiveness of measures to increase clearing at EU CCPs and the cost impact on clearing participants. This trade-off is to be considered in the calibration and design of the measures themselves, so as to make costs proportionate. The proposal also reviews the supervisory arrangements for EU CCPs to address the challenges they face due to inefficient authorisation processes. In addition, changes to the supervisory architecture aim at reflecting the need for increased cooperation of authorities in the EU due to the growing importance of EU CCPs while preserving the fiscal responsibilities of the authorities of the Member State of establishment. Furthermore, the introduction of an active account requirement, the establishment of monitoring at EU level regarding the transfer of EU firms’ excessive exposures from systemically important third-country CCPs (‘Tier 2 CCPs’) to EU CCPs and the ex-post approval/non-objection procedure for certain changes to CCPs’ risk models as well as for the extension of the services they offer, take into account the concerns raised by stakeholders, including ESMA, while safeguarding the objectives of EMIR. The proposal does not go beyond what is necessary to achieve these objectives, considering the need to monitor and to mitigate any risks the operations of CCPs, including third-country CCPs, may raise for financial stability. The proportionality of the preferred policy options is further assessed in Chapters 7 and 8 of the accompanying Impact Assessment. •Choice of the instrument EMIR is a Regulation and thus it needs to be amended by a legal instrument of the same nature. 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •Ex-post evaluations/fitness checks of existing legislation The Commission services consulted extensively, engaging with a broad range of stakeholders, including EU bodies (ECB, European Systemic Risk Board (ESRB), European Supervisory Authorities (ESAs)), Member States, members of the European Parliament’s Economic and Monetary Affairs Committee, the financial services sector (banks, pension funds, investment funds, insurance companies, etc.) as well as non-financial corporates to evaluate whether EMIR sufficiently ensures EU financial stability. This process showed that there are ongoing risks to EU financial stability due to the excessive concentration of clearing in a few third-country CCPs. These risks are particularly relevant in a stress scenario. Nonetheless, considering the relatively recent entry into force of EMIR 2.2 and the fact that some requirements do not apply yet, the Commission services did not consider it appropriate to prepare a full back-to-back evaluation of the entire framework. Instead, key areas were identified upfront based on stakeholder input and internal analysis (Section 3 of the accompanying Impact Assessment on the problem definition explains in detail the the inefficiencies and ineffectiveness of the current rules). •Stakeholder consultations The Commission has consulted stakeholders throughout the process of preparing this proposal. In particular through: ·a Commission targeted consultation between 8 February and 22 March 2022. It was decided that the consultation should be targeted and the questions were focused on a very specific and rather technical area. 71 stakeholders responded to the targeted consultation via the online form while some confidential responses were also submitted via email. ·a Commission Call for Evidence between 8 February and 8 March 2022. ·consultations of stakeholders through the Working Group on the opportunities and challenges of transferring derivatives from the United Kingdom (UK) to the EU, in the first half of 2021 including several stakeholder outreach meetings in February, March and June 2021. ·meeting with Members of the European Parliament on 4 May as well as bilateral meetings subsequently.

·meeting with Member States’ experts on 30 March 2022, 16 June 2022 and 8 November 2022. ·meetings of the Financial Services Committee on 2 February and 16 March 2022. ·meetings of the Economic and Financial Committee on 18 February and 29 March 2022. ·bilateral meetings with stakeholders as well as confidential information received from a wide range of stakeholders. The main messages of this consultative process were: ·Work starting in 2021 showed that improving the attractiveness of clearing, encouraging the development of EU infrastructures and strengthening the supervisory arrangements in the EU will take time. ·A variety of measures were identified that could help improve the attractiveness of EU CCPs and clearing activities as well as ensure that their risks are appropriately managed and supervised. ·These identified measures are not only within the remit of the Commission and co-legislators, but could also potentially require actions from the ECB, national central banks, ESAs, national supervisory authorities, CCPs and banks. ·The consultation showed that market participants generally prefer a market-driven approach to regulatory measures, to minimise costs and for EU market participants to remain competitive internationally. Nevertheless, regulatory measures were supported to a certain extent, especially when allowing for a faster approval process for CCPs’ new products and services. ·Measures deemed useful to enhance EU CCP’s attractiveness were: maintaining an active account with an EU CCP, measures to facilitate expanding services by EU CCPs, broadening the scope of clearing participants, amending hedge accounting rules and enhancing funding and liquidity management conditions for EU CCPs. The proposal takes this stakeholder feedback into account, as well as the feedback received through meetings with a broad range of stakeholders, EU authorities and institutions. It introduces targeted amendments to EMIR aimed at: ·Improving the attractiveness of EU CCPs by simplifying the procedures for launching products and changing models and parameters and introducing a non-objection/ex-post approval/review for certain changes. This allows EU CCPs to introduce new products and model changes more quickly while ensuring adequate risk considerations are upheld and without endangering financial stability and therefore making EU CCPs more competitive. ·Encouraging central clearing in the EU to safeguard financial stability by requiring clearing members and clients to hold, directly or indirectly, an active account at EU CCPs, and facilitating clearing by clients will help to reduce exposures to, and with it excessive reliance on, Tier 2 third-country CCPs which is a risk to the financial stability of the EU. ·Enhancing the assessment and management of cross-border risk by ensuring that authorities in the EU have adequate powers and information to monitor risks in relation to both EU and third-country CCPs, including by enhancing their supervisory cooperation within the EU. •Collection and use of expertise In preparing this proposal the Commission relied on the following external expertise and data: ·ESMA’s Report under Article 25(2c) of EMIR submitted to the Commission in December 2021; the report also took into account answers to ESMA’s surveys and data collection exercises from CCPs and clearing participants; ·ESRB’s response to ESMA’s consultation under Article 25 (2c) EMIR, issued in December 2021; ·Bank for International Settlement statistics; ·CEPS, 2021, ”Setting EU CCP policy – much more than meets the eye”; and

·ClarusFT database. This input has been complemented with, at times confidential, quantitative and qualitative input from financial markets participants. •Impact assessment The Commission conducted an impact assessment of relevant policy alternatives. Policy options were identified based on the following four drivers: (i) complex, lengthy and burdensome procedures, (ii) limited participation in EU CCPs and concentration in incumbent CCPs, (iii) interconnectedness of the EU financial system, (iv) inefficient framework for supervisory cooperation. The policy options were assessed against the specific objectives of improving the attractiveness of EU CCPs, encouraging clearing in EU CCPs and enhancing the assessment and management of cross-border risks. The Impact Assessment received a positive opinion with comments by the Regulatory Scrutiny Board on 14 September 2022 which made the following main recommendations for improvements: ·explain what success would look like and how it will be effectively monitored; ·make the range of options considered more comprehensive; ·bring out the rationale behind, and the envisaged design of, key measures to be dealt with through implementing regulation and clarify the criteria and parameters that will frame their development. The requested clarifications were added in the relevant sections of the Impact Assessment. Based on the assessment and comparison of all policy options, the Impact Assessment concluded on the following preferred policy options: ·Measures to improve the attractiveness of EU CCPs: a combination of measures simplifying the procedures for launching products and changing models as well as introducing an ex-post approval/non-objection procedure for certain changes was identified as the preferred option. These measures would simplify current procedures while preserving financial stability. Simplifying the procedures for launching products and changing models as well as introducing an ex-post/non-objection approval/review for certain changes were also assessed as separate options. However, as they would individually only partially meet the objectives, a combination of both options was deemed most appropriate to meet the outlined objectives. ·Measures to encourage central clearing in the EU to safeguard financial stability: a combination of different options was considered most appropriate to meet the objectives, which would include the following aspects: i) requiring clearing members and clients to hold an active account at EU CCPs; ii) ensuring compliance with the new requirements on clearing activities; iii) encouraging public entities that clear voluntarily through a CCP to do so in the EU via a Communication; and iv) facilitating central clearing. Combining these options would allow to address excessive reliance on Tier 2 CCPs, increase central clearing in the EU and remove obstacles to central clearing. Some of these measures may entail level 2 acts setting out the specific aspects. The policy options have also been assessed separately but a combination of the options was considered most effective to meet the objectives. ·Measures to enhance the assessment and management of cross-border risks: targeted amendments to the current supervisory framework were deemed most appropriate and proportionate as they attain the right balance between achieving the following objectives: (i) strengthen the framework for robust consideration of cross-border risks, (ii) enhance EU financial stability, and (iii) improve the attractiveness of EU CCPs, while acknowledging that resolution decisions impacting CCPs, clearing members and clients are taken at national level and Member States remain ultimately responsible for supporting financially CCPs authorised in their jurisdiction. ·The overall package of options will have a positive effect on the post-trading landscape in the EU by improving the attractiveness of EU CCPs, encouraging central clearing in the EU, enhancing the assessment and management of cross-border risk and thus contributing to the competitiveness of the EU financial markets as well as EU financial stability. •Regulatory fitness and simplification The initiative aims to enhance the attractiveness of EU CCPs, reduce the excessive reliance of EU market participants on non-EU CCPs, safeguard EU financial stability and enhance the EU’s open strategic autnomy. As such, it does not aim at reducing costs per se. However, the preferred policy option to increase EU CCPs’ attractiveness will lead to a simplification of procedures for EU CCPs, reducing administrative burdens and making their operations more efficient, thus also bringing about a reduction of costs. The approximate range of these cost savings has been estimated based on interactions with stakeholders and several assumptions which were needed to extrapolate the effects to the whole EU. This cost saving is of administrative nature and thus counts under the “one in, one out” approach as an “out” in the range of approx. EUR 5 million to EUR 15 million (EU total). This is likely to be concentrated in few EU CCPs (as few EU CCPs might bring new products to the market in a given year) and is likely to be beneficial in terms of their attractiveness. As regards potential additional costs relevant for “one in one out”, i.e. very limited paperwork related to opening an account with a CCP, the administrative costs are negligible (for more details, see Annex 3 of the accompanying Impact Assessment) As regards the active account requirement, based on estimates of the Commission services on the basis on confidential information, roughly 60% of the EU clients of EU clearing members already have an account for clearing interest rate swaps at an EU CCP, and roughly 85% have one for credit default swaps. Thus, for these clients opening an account at an EU CCP for these types of products would not be an additional cost. In addition, any cost could depend on which CCP they participate in: according to confidential information provided to the Commission services, in some EU CCPs, for example, the costs of an account per se are zero under certain conditions. The active account requirement will be further specified in an RTS to be prepared by ESMA, which will be subject to a public consultation and a cost benefit analysis. •Fundamental rights The EU is committed to high standards of protection of fundamental rights and is signatory to a broad set of conventions on human rights. In this context, this proposal respects these rights, in particular the economic rights, as listed in the main United Nations conventions on human rights, the Charter of Fundamental Rights of the European Union which is an integral part of the EU Treaties, and the European Convention on Human Rights.

4.BUDGETARY IMPLICATIONS The proposal will have no implications for the budget of the Union. This legislative initiative will have no impact on expenditures for ESMA or other bodies of the European Union. The impact assessment identified only moderate additional costs for ESMA, while at the same time the proposed measures create efficiencies that will lead to cost reductions. In addition, some provisions clarify and recalibrate the role of ESMA whilst not constituting new tasks and are therefore to be considered budget neutral. Costs identified relate to the setting up and operation of a new central database, i.e. an IT tool for the submission of supervisory documents. However, even though ESMA might incur higher costs related to developing or choosing such a new IT tool as well as operating it, this IT tool will also create efficiencies and ESMA will benefit from those. These efficiencies relate to considerably less manual work in the reconciliation and sharing of documents, the following up on deadlines and questions as well as coordination with national competent authorities (NCAs), the college and the CCP Supervisory Committee. These benefits are likely to outweigh the costs incurred. Furthermore, initial additional (paper-)work related to the modification of tools and procedures, as well as to enhanced cooperation, may increase costs at first, but these are likely to be reduced, or remain stable, over time. Notably, ESMA will be required to draft regulatory / implementing technical standards (RTS/ITS) on the format and content of the documents CCPs are required to submit to supervisory authorities when submitting an application, on standards for reporting on clearing activity and exposure to non-EU CCPs and the specification of the requirement for clearing members and clients to have an active account at a Union CCP, as well as a few reports, including the annual report on the results of their monitoring activity and cross-border activities and the bi-annual report on non-financial counterparties’ clearing activities. In undertaking those activities, ESMA can build on already existing internal processes and procedures, and it may convert, where relevant, those procedures into RTSs/ITSs. In defining the active account requirement for some already identified instruments, and their ongoing monitoring, ESMA can take into account the work it has undertaken under Article 25(2c) of EMIR when assessing which Tier 2 CCPs’ clearing services are of substantial systemic importance to the Union or one or more of its Member States and might therefore only require some very limited additional resources. Another category to be considered in the cost analysis is the modification of procedures and tools to the new supervisory cooperation framework. The cooperation in joint supervisory teams and the establishment of a joint monitoring mechanism at EU level are new elements in the supervisory framework. However, they are mainly tools to improve the cooperation between authorities and cover tasks that are already, in all essential parts, performed by the authorities, except for the monitoring of the implementation of the requirements set out for active accounts at EU CCPs, such as fees for access charged by CCPs to clients for active accounts. These new structures will likely require some reorganisation of resources and potentially create the need for additional meetings but will not have substantial budgetary implications. Moreover, the recalibrated supervisory process also comes with benefits, notably clearer responsibilities, avoiding unnecessary duplicative work and less work due to the introduction of non-objection procedures which enable ESMA and NCAs to focus on the material aspects of supervision in relation to the extension of central clearing services and changes to CCPs’ risk models. The proposed change clarifying that ESMA can withdraw the recognition of third-country CCPs that refuse to pay fees to ESMA will be positive in terms of costs. This avoids ESMA having to invest a considerable amount of work without getting remunerated for it. In addition, further provisions are introduced which clarify and recalibrate the role of ESMA and are therefore to be considered budget neutral. For instance, ESMA already has the obligation to issue opinions before NCAs adopt certain decisions, however the content of those opinions is recalibrated to ensure a higher degree of efficiency in the supervisory process and ESMA is given a formal opportunity to issue an opinion on CCPs’ annual review and evaluation as well as on the withdrawal of their authorisation and margin requirements. In addition, ESMA is to take a clear role in coordinating and providing recommendations in emergency situations. These are tasks that, in all material respects, relate to their already existing ongoing work and the provisions clarify and therefore strengthen ESMA’s position, providing clear responsibilities. Even though smaller changes to the role of other European Union bodies, such as the European Commission or the European Central Bank, are introduced, they will not have budgetary implications. 5.OTHER ELEMENTS •Implementation plans and monitoring, evaluation and reporting arrangements The measures aim at improving the attractiveness of EU CCPs and enhancing the supervision of cross-border risks in the EU. As such, several changes to EMIR are considered and, in some cases, amendments to other pieces of EU legislation. The proposal ensures that the relevant EU bodies can access the relevant information, while not giving rise to undue costs. The proposal includes a provision that an evaluation of EMIR in its entirety should be carried out, with a focus on its effectiveness and efficiency in meeting its original aims (i.e. improving the efficiency and safety of EU clearing markets and preserving financial stability). The evaluation should consider all aspects of EMIR, but especially improved attractiveness of EU CCPs. In principle, this evaluation should take place at least 5 years after the Regulation enters into and would seek to collect input from all relevant stakeholders. •Detailed explanation of the specific provisions of the proposal Detailed explanation of the specific provisions of the proposal 1.Intragroup transactions EMIR provides for a framework exempting intragroup transactions (domestically and cross-border) from the clearing obligation under Article 4 and the margin requirements under Article 11 of that Regulation. In order to provide more legal certainty and predictability concerning the framework for intragroup decisions, the need for an equivalence decision is replaced by a list of jurisdictions for which an exemption cannot be granted. Article 3 should therefore be amended to replace the need for an equivalence decision with a list of third countries for which an exemption should not be granted and Article 13 should be deleted. These third countries should be those that are listed as a high-risk third country that has strategic deficiencies in its regime on anti-money laundering and counter terrorist financing, in accordance with Article 9 of Directive (EU) 2015/849 of the European Parliament and of the Council, and those listed in Annex I of the Union list of non-cooperative jurisdictions for tax purposes. The Commission is also empowered to adopt delegated acts to identify the third countries whose entities may not benefit from those exemptions despite not being identified in those lists, as being an entity from a third country identified in those lists is not necessarily the only factor that can influence risk, including counterparty risk or legal risk, associated with derivative contracts. 2.Clearing obligation Article 4 is amended to introduce an exemption from the clearing obligation where an EU financial counterparty or a non-financial counterparty, subject to the clearing obligation under EMIR, enters into a transaction with a pension scheme arrangement established in a third country which is exempted from the clearing obligation under its national law. 3.Clearing obligation for financial counterparties

Article 4a is amended and as a result, when calculating the position towards the thresholds under Articles 4a of EMIR, only those derivative contracts that are not cleared at a CCP authorised under Article 14 or recognised under Article 25 of that Regulation should be included in that calculation. 4.Active account A new Article 7a is introduced in order to address the risks associated with excessive exposures of EU clearing members and clients to third-country CCPs that provide clearing services identified as of substantial systemic importance by ESMA, and thereby ensure the integrity and stability of the EU financial system. This article requires financial counterparties and non-financial counterparties that are subject to the clearing obligation, to hold active accounts, directly or indirectly, at CCPs established in the EU, to clear at least a certain proportion of the services identified as of substantial systemic importance at EU CCPs, and to report on that. This requirement should lead to a reduction of excessive exposures in substantially systemic clearing services offered by the relevant Tier 2 CCPs, to the extent necessary to safeguard financial stability. ESMA, in cooperation with EBA, EIOPA and the ESRB and after consulting the ESCB, shall establish the details of the calibration of the activity to be maintained in these active accounts and the reporting requirements of transactions cleared at such active accounts. The Commission is empowered, where ESMA undertakes an assessment pursuant to Article 25(2c), to adopt a delegated act to amend the list of categories of derivative contracts which are subject to the active account requirement by adding or removing categories from that list. 5.Information on clearing services A new Article 7b is introduced to require clearing members and clients that provide clearing services, to inform their clients about the possibility to clear a relevant contract at an EU CCP. Article 7b also introduces an obligation for EU clearing members and EU clients to report to their competent authority the scope of clearing undertaken at non-EU CCPs. To ensure that the information to be submitted is specified and provided in a harmonised manner, ESMA is required to develop draft regulatory and implementing technical standards specifying the required information. 6.Reporting obligation Article 9 is amended to remove the exemption from reporting requirements for transactions between counterparties within a group, where at least one of the counterparties is a non-financial counterparty, in order to ensure visibility on intra-group transactions. 7.Clearing obligation for non-financial counterparties Article 10 is amended to require ESMA to review and clarify, where appropriate, the regulatory technical standards relating to the criteria for establishing which OTC derivative contracts are objectively measurable as reducing risks, the so-called hedging exemption, and the designation of thresholds in order to properly and accurately reflect the risks and characteristics in derivatives, and to consider whether the classes of OTC derivatives, namely interest rate, foreign exchange, credit and equity derivatives, are still the relevant classes. ESMA is encouraged to consider and provide, amongst others, more granularity for commodity derivatives. Article 10 is also amended to require, when calculating the positions towards the thresholds, that only those derivative contracts that are not cleared at a CCP authorised under Article 14 or recognised under Article 25 should be included in that calculation. 8.Risk-mitigation techniques for OTC derivative contracts not cleared by a CCP Article 11 is amended to provide non-financial counterparties that become subject for the first time to the obligation to exchange collateral for OTC derivative contracts not cleared by a CCP, with an implementation period of 4 months in order to negotiate and test the arrangements to exchange collateral. EBA may issue guidelines or recommendations to ensure a uniform application of the risk-management procedures in cooperation with the other ESAs. 9.Authorisation of a CCP and extension of activities and services Articles 14 and 15 are amended to clarify that authorised CCPs should also be able to be authorised to provide clearing services and activities in non-financial instruments, in addition to their authorisation to provide clearing services and activities in financial instruments. 10.Authorisation of a CCP, extension of activities and services and procedure for granting and refusing authorisation Articles 14, 15 and 17 are amended in order to ensure the relevant procedures for CCPs to expand their product offer are shorter, less complex and more certain in their outcome for EU CCPs. The competent authorities are required to swiftly acknowledge receipt of the application assessing whether the documents required for the authorisation or extension have been provided by the CCP. To ensure that EU CCPs submit all required documents with their applications, ESMA is required to develop draft regulatory and implementing technical standards specifying such documents, their format and content. In addition, the CCP should submit all documents to a central database where they should be shared instantaneously with the CCP’s competent authority, ESMA and the college. Furthermore, the CCP’s competent authority, ESMA and the college, during a predefined assessment period, should interact with each other and ask the CCP questions to ensure a flexible and cooperative process. 11.Non-objection and ex-post procedures for granting a request fo extension of activities or services A new Article 17a is introduced to provide CCPs with the possibility to undergo a non-objection procedure, instead of a regular procedure, for the authorisation of additional services or activities a CCP intends to offer which do not increase the risks for the CCP. Article 17a states which additional services and activities are considered non-material and are therefore to be approved through such a non-objection procedure by that CCP’s competent authority and for which the CCP may start to offer before the decision is received by the CCP’s competent authority. Apart from these cases, a CCP may also ask its competent authority for the non-objection procedure to apply where it considers that the proposed additional service or activity would not increase its risks.

12.Procedure for seeking the opinion from ESMA and the college A new Article 17b is introduced in order to clarify the scope and process to be followed where a competent authority seeks the opinion of ESMA and the college before adopting a supervisory decision for which the CCP does not submit an application, e.g. regarding a CCP’s compliance with requirements on record-keeping or conflicts of interests. 13.College and opinion of the college Articles 18 and 19 are amended to further foster a cooperative supervision of CCPs on an ongoing basis. The college is therefore requested to also issue an opinion where a competent authority considers withdrawing a CCP’s authorisation as well as when a competent authority conducts the annual review and evaluation of that CCP. ESMA should manage and chair the college for each EU CCP and be granted the right to vote. 14.Withdrawal of authorisation Article 20 is amended to require the competent authority to consult ESMA and the members of the college before the CCP’s competent authority takes a decision to withdraw, or restrict the scope of, a particular service or activity , except where a decision is required urgently. 15.Annual review Article 21 is amended to indicate that the annual review should consider the services or activities the CCP provides or the model changes the CCP uses based on a non-objection procedure. Also, the frequency of the report resulting from the review is further specified ( the report should be delivered, at least, on a yearly basis on a given date). Moreover, it is specified that the report is subject to the opinion by ESMA and the college. 16.Supervisory cooperation between competent authorities and ESMA with regards to authorised CCPs and procedure for granting and refusing authorisation Articles 17 and 23a are amended in order to enable ESMA to issue an opinion to the CCP’s competent authority also in relation to a CCP’s annual review and evaluation, margin requirements and the withdrawal of its authorisation. When issuing such an opinion, ESMA is to assess the CCP’s compliance with the relevant EMIR requirements, focusing in particular on identified cross-border risks or risks to EU financial stability. Moreover, ESMA should publish the fact that a competent authority does not comply or does not intend to comply with its opinion or the opinion of the college or with any conditions or recommendations included therein. ESMA can also publish the reasons for non-compliance provided by the competent authority. Article 23a is amended to further specify the role of ESMA in strengthening the coordination in emergency situations and assessing risks, in particular on a cross-border basis. 17.Joint Supervisory Teams, non-objection procedures for granting a request of extension of activities or services and review and evaluation A new Article 23b is introduced in order to increase the cooperation of the authorities involved in the supervision of authorised EU CCPs by establishing joint supervisory teams. The tasks of joint supervisory teams include: (i) to provide input to the CCP’s competent authority within the context of the non-objection procedure for extending a CCP’s existing authorisation, (ii) to assist in establishing the frequency and depth of a CCP’s review and evaluation and (iii) to participate to on-site inspections. 18.Joint Monitoring Mechanism A new Article 23c is introduced in order to establish a cross-sectoral monitoring mechanism bringing together Union bodies involved in the supervision of EU CCPs, clearing members and clients. ESMA, in cooperation with the other bodies participating to the Joint Monitoring Mechanism, is to submit an annual report to the European Parliament, the Council and the Commission on the results of the monitoring activity in order to inform future policy decisions. ESMA may also issue guidelines or recommendations if it considers that competent authorities fail to ensure clearing members’ and clients’ compliance with the active account requirement or it identifies a risk to the EU financial stability. 19.Emergency situation Article 24 is amended to further enhance the role of ESMA in an emergency situation by enabling ESMA to convene meetings of the CCP Supervisory Committee, either on its own initiative or upon request, potentially with an enlarged composition, to coordinate effectively competent authorities’ responses. ESMA is also empowered to ask, by simple request, information from market participants in order to perform its coordination function in these cases. ESMA may also issue recommendations directed to the CCP’s competent authorities. 20.CCP Supervisory Committee Article 24a is amended in order for ESMA to map and identify the supervisory priorities, to consider cross-border risks including interconnections, interlinkages and concentration risks. In addition, Article 24a is amended to allow central banks of issue to attend all meetings of the CCP Supervisory Committee for EU CCPs and for the relevant authorities for clients and EU bodies to be invited, where appropriate.

21.Recognition of a third-country CCP Article 25 is amended to clarify that where ESMA undertakes a review of a third-country CCP’s recognition, that CCP should not be obliged to submit a new application but should provide ESMA with all information necessary for such review. Article 25 is amended to introduce the possibility for the Commission, where in the interests of the Union, to take a proportionate approach and waive the requirement for a third country to have an effective equivalent system for the recognition of third-country CCPs when adopting an equivalence decision for that third-country. To ensure that cooperation arrangements are proportionate, ESMA should tailor them to different jurisdictions based on the CCP(s) established in the respective jurisdiction. For Tier 2 CCPs the cooperation arrangements should cover a broader range of information to be exchanged between ESMA and the relevant third-country authorities and with an increased frequency. Article 25 is further amended in order for cooperation arrangements to include the right for ESMA to also be informed where a Tier 2 CCP is required to enhance its preparedness in financial distress, by, for example, establishing a recovery plan or where an authority in such a third country establishes resolution plans. ESMA is also to be informed of the aspects relevant for the financial stability of the EU in relation to emerging crisis. 22.Ongoing compliance with the conditions for recognition Article 25b is amended to clarify that Tier 2 CCPs are to provide ESMA with information on a regular basis. 23.Withdrawing of recognition and public notice Article 25p and 25r are amended to clarify that ESMA can withdraw the recognition where a non-EU CCP infringes any of the requirements under EMIR and can issue a public notice where fees are not paid or where a CCP has not taken a remedial action requested by ESMA. 24.Information to competent authorities Article 31 on the notification on changes to the management of a CCP is amended to clarify the procedure in relation to the sharing of information and issuing ESMA and college opinions. 25.ESMA and college opinions Articles 32, 35, 41 and 54 are amended to clarify the requests for ESMA and college opinions. 26.Participation requirements and general provisions regarding organisational requirements Articles 26 and 37 are amended to clarify that CCPs should not be allowed to be clearing members of other CCPs nor accept to have other CCPs or clearinghouses as clearing members or indirect clearing members. 27.Participation requirements Article 37 is amended to set out that where a CCP has on-boarded or intends to on-board non-financial counterparties as clearing members, that CCP should ensure that certain additional requirements on margin requirements and default funds are met. Non-financial counterparties should not be permitted to offer client clearing services and only be allowed to keep accounts at the CCP for assets and positions held for their own account. The competent authority for the CCP should report to ESMA and the college on a regular basis on the appropriateness of accepting non-financial counterparties as clearing members. ESMA is mandated to prepare a draft RTS on the elements to be considered when determining the access criteria and might issue an opinion on the appropriateness of such arrangements following an ad-hoc peer review. 28.Transparency Article 38 is amended in order to ensure that clients and indirect clients have better visibility and predictability of margin calls. Clearing members and clients providing clearing services should ensure transparency towards their clients. 29.Margin requirements

Article 41 is amended to ensure that CCPs continuously revise the level of their margins while taking into account any potentially procyclical effects of such revisions, reflecting current market conditions and considering the potential impact of their intraday margin collections and payments on the liquidity position of their participants. 30.Liquidity risk controls Article 44 is amended to better reflect the entities whose default could materially affect a CCP’s liquidity position by requiring a CCP to take into account the liquidity risk generated by the default of at least two entities, including clearing members and liquidity service providers 31.Collateral requirements Article 46 is amended to allow bank guarantees and public guarantees to be considered eligible as highly liquid collateral provided that they are unconditionally available upon request within the liquidation period and making sure a CCP takes them into account when calculating its overall exposure to the bank. Furthermore, a CCP should take into account any potential procyclical effects when revising the level of the haircuts it applies to the assets it accepts as collateral. 32.Review of models, stress testing and back testing Article 49 is amended in order to ensure the relevant procedures for CCPs to apply model changes are shorter, less complex and more certain in their outcome. The competent authorities are required to swiftly acknowledge receipt of the application for the model change by assessing whether the documents required have been provided by the CCP. To ensure that EU CCPs submit all required documents with their applications, ESMA is required to develop draft regulatory and implementing technical standards specifying such documents, their format and content. In addition, the CCP should submit all documents to a central database where they should be shared instantaneously with the CCP’s competent authority, ESMA and the college. Article 49 also introduces the possibility to undergo a non-objection procedure, instead of a regular procedure, for the validation of model changes considered not significant and specifies which changes are considered significant. Where a CCP considers the change as non-significant it may start to use the model change before the decision is received by the CCP’s competent authority. 33.Amendments to the Reports and Review Article 85 is amended to require the Commission to submit by [5 years after the entry into force of this Regulation] a report assessing the application of this Regulation. The Commission is required to submit that report to the European Parliament and to the Council, together with any appropriate proposals. In addition, the current requirement to deliver a report by 2 January 2023 is removed. ESMA is also required to submit a report by [3 years after the entry into force of this Regulation] on its staffing and resources. 34.Amendments to the Capital Requirements Regulation (CRR) Article 382(4) of the CRR is amended in order to align relevant provisions in the CRR with the changes suggested in this proposal. The amendment adjusts the scope of the own funds requirement for credit valuation adjustment risk, notably by clarifying which intragroup transactions can be excluded from that requirement. 35.Amendments to the Money Market Funds Regulation (MMFR) Article 17 of the MMFR is amended regarding the provisions on investment policy regarding counterparty risk limits. It excludes centrally cleared derivative transactions from the counterparty risk limits set out in Article 17(4) and 17(6)(c) of the MMFR. Furthermore, a definition of a CCP is added in Article 2, specifically as a new point (24).



2022/0403 (COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Central Bank, Having regard to the opinion of the European Economic and Social Committee, Acting in accordance with the ordinary legislative procedure, Whereas: (1)Regulation (EU) No 648/2012 of the European Parliament and of the Council contributes to the reduction of systemic risk by increasing the transparency of over-the-counter (OTC) derivatives market and by reducing the counterparty credit and operational risks associated with OTC derivatives. (2)Post-trade infrastructures are a fundamental aspect of the Capital Markets Union and are responsible for a range of post-trade processes, including clearing. An efficient and competitive clearing system in the Union is essential for the functioning of Union capital markets and is a cornerstone of the Union’s financial stability. It is therefore necessary to lay down further rules to improve the efficiency of clearing services in the Union in general, and of central counterparties (CCPs) in particular, by streamlining procedures, especially for the provision of additional services or activities and for changing CCPs’ risk models, by increasing liquidity, by encouraging clearing at Union CCPs, by modernising the framework under which CCPs operate, and by providing the necessary flexibility to CCPs and other financial actors to compete within the single market. (3)To attract business, CCPs must be safe and resilient. Regulation (EU) No 648/2012 lays down measures to increase the transparency of derivatives markets and mitigate risks through clearing and the exchange of margin. In that respect, CCPs play an important role in mitigating financial risks. Rules should therefore be laid down to further enhance the stability of Union CCPs, notably by amending certain aspects of the regulatory framework. In addition, and in recognition of Union CCPs’ role in preserving the Union’s financial stability, it is necessary to strengthen further their supervision, with particular attention to their role within the broader financial system and the fact they provide services across borders. (4)Central clearing is a global business and Union market participants are active internationally. However, since the Commission adopted the proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs in 2017, concerns have been expressed repeatedly, including by the European Securities and Markets Authority (ESMA), about the ongoing risks to the Union financial stability arising from the excessive concentration of clearing in some third-country CCPs, in particular due to the potential risks that can arise in a stress scenario. In the short-term, to mitigate the risk of cliff edge effects related to the withdrawal of the UK from the Union due to an abrupt disruption of Union market participants’ access to UK CCPs, the Commission adopted a series of equivalence decisions to maintain access to UK CCPs. However, the Commission called on Union market participants to reduce their excessive exposures to systemic CCPs outside the Union in the medium term. The Commission reiterated that call in its communication “The European economic and financial system: fostering openness, strength and resilience” in January 2021. The risks and effects of excessive exposures to systemic CCPs outside the Union were considered in the report published by ESMA in December 2021 following an assessment conducted in accordance with Article 25(2c) of Regulation (EU) No 648/2012. That report concluded that some services provided by those systemically important UK CCPs were of such substantial systemic importance that the current arrangements under Regulation (EU) No 648/2012 were insufficient to manage the risks to the Union financial stability. To mitigate the potential financial stability risks to the Union due to the continued excessive reliance on systemic third-country CCPs, but also to enhance the proportionality of measures for those third-country CCPs that present less risks for the financial stability of the Union, it is necessary to further tailor the framework introduced by Regulation (EU) 2019/2099 to the risks presented by different third-country CCPs. (5)Article 4(2) and Article 11(5) to (10) of Regulation (EU) No 648/2012 exempt intragroup transactions from the clearing obligation and the margin requirements. To provide more legal certainty and predictability concerning the framework for intragroup transactions, the equivalence decisions in Article 13 of that Regulation should be replaced by a simpler framework. Article 3 of that Regulation should therefore be amended to replace the need for an equivalence decision with a list of third countries for which an exemption should not be granted. Consequently, Article 13 of that Regulation should be deleted. Since Article 382 of Regulation (EU) No 575/2013 of the European Parliament and of the Council refers to intragroup transactions as provided for in Article 3 of Regulation (EU) No 648/2012, that Article 382 should also be amended accordingly. (6)Given the fact that entities that are established in countries that are listed as high-risk third countries that have strategic deficiencies in their regime on anti-money laundering and counter terrorist financing, as referred to in Article 9 of Directive (EU) 2015/849 of the European Parliament and of the Council, or in third countries that are listed in Annex I to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes are subject to a less stringent regulatory environment, their operations may increase the risk, including due to increased counterparty credit risk and legal risk, for the Union financial stability. Consequently, such entities should not be eligible to be considered in the framework of intragroup transactions. (7)Strategic deficiencies in the regime on anti-money laundering and counter terrorist financing, or lack of cooperation for tax purposes are not necessarily the only factors that can influence risk, including counterparty credit risk and legal risk, associated with derivative contracts. Other factors, such as the supervisory framework, also play a role. The Commission should therefore be empowered to adopt delegated acts to identify the third countries whose entities may not benefit from those exemptions despite not being identified in those lists. Considering that intragroup transactions benefit from reduced regulatory requirements, regulators and supervisors should carefully monitor and assess the risks associated with transactions involving entities from third countries. (8)To ensure a level playing field between Union and third-country credit institutions offering clearing services to pension scheme arrangements, an exemption from the clearing obligation under Article 4, point (iv), of Regulation (EU) No 648/2012 should be introduced where a Union financial counterparty or a non-financial counterparty that is subject to the clearing obligation enters into a transaction with a pension scheme arrangement established in a third country which is exempted from the clearing obligation under that third country’s national law. (9)Regulation (EU) No 648/2012 promotes the use of central clearing as the main risk-mitigation technique for OTC derivatives. The risks associated with an OTC derivative contract are therefore best mitigated when that derivative contract is cleared by a CCP authorised under Article 14 or recognised under Article 25 of that Regulation. It follows that in the calculation of the position that is compared to the thresholds specified pursuant to Article 10(4), point (b), of Regulation (EU) No 648/2012, only those derivative contracts that are not cleared by a CCP authorised under Article 14 or recognised under Article 25 of that Regulation should be includedin that calculation. (10)It is necessary to address the financial stability risks associated with excessive exposures of Union clearing members and clients to systemically important third-country CCPs (Tier 2 CCPs) that provide clearing services that have been identified by ESMA as clearing services of substantial systemic importance pursuant to Article 25(2c) of Regulation (EU) No 648/2012. In December 2021, ESMA concluded that the provision of certain clearing services provided by two Tier 2 CCPs, namely for interest rate derivatives denominated in euro and Polish zloty, Credit Default Swaps (CDS) denominated in euro and Short-Term Interest Rate Derivatives (STIR) denominated in euro, are of substantial systemic importance for the Union or one or more of its Member States. As noted by ESMA in its December 2021 assessment report, were those Tier 2 CCPs to face financial distress, changes to those CCPs’ eligible collateral, margins or haircuts may negatively impact the sovereign bond markets of one or more Member States, and more broadly the Union financial stability. Furthermore, disruptions in markets relevant for monetary policy implementation may hamper the transmission mechanism critical to central banks of issue. It is therefore appropriate to require any financial counterparties and non-financial counterparties that are subject to the clearing obligation to hold, directly or indirectly, accounts with a minimum level of activity at CCPs established in the Union. That requirement should reduce the provision of those clearing services by those Tier 2 CCPs to a level where such clearing is no longer of substantial systemic importance. (11)It is necessary to ensure that the calibration of the level of the clearing activity to be maintained in accounts at Union CCPs can be adapted to changing circumstances. ESMA has an important role in the assessment of the substantial systemic importance of third-country CCPs and their clearing services. ESMA, in cooperation with the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the ESRB, and after having consulted the European System of Central Banks (ESCB), should therefore develop draft regulatory technical standards specifying the details of the level of substantially systemic clearing services to be maintained in the active accounts in Union CCPs by financial and non-financial counterparties subject to the clearing obligation. Such calibration should not go beyond what is necessary and proportionate to reduce clearing in the identified clearing services at Tier 2 CCPs concerned. In that regard, ESMA should consider the costs, risks and the burden such calibration entails for financial and non-financial counterparties, the impact on their competitiveness, and the risk that those costs are passed on to non-financial firms. Furthermore, ESMA should also ensure that the envisaged reduction in clearing in those instruments, identified as of substantial systemic importance, results in them no longer being considered of substantial systemic importance when ESMA reviews the recognition of the relevant CCPs which according to Article 25(5) of that Regulation and where such a review should be done at least every five years. In addition, suitable phase-in periods for the progressive implementation of the requirement to hold a certain level of the clearing activity in the accounts at Union CCPs should be foreseen. (12)To ensure that clients are aware of their options and can take an informed decision as where to clear their derivative contracts, clearing members and clients that provide clearing services in both Union and recognised third-country CCPs should inform their clients about the option to clear a derivative contract in a Union CCP so that clearing in those services identified as of substantial systemic importance is reduced in Tier 2 CCPs in order to ensure the financial stability of the Union. (13)To ensure that competent authorities have the necessary information on the clearing activities undertaken by clearing members or clients in recognised CCPs, a reporting obligation should be introduced for such clearing members or clients. The information to be reported should distinguish between securities transactions, derivative transactions traded on a regulated market and over-the-counter (OTC) derivatives transactions.

(14)Regulation (EU) 2019/834 of the European Parliament and of the Council amended Regulation (EU) No 648/2012 to introduce, inter alia, an exemption from reporting requirements for OTC derivative transactions between counterparties within a group, where at least one of the counterparties is a non-financial counterparty. That exemption has been introduced because intragroup transactions involving non-financial counterparties represent a relatively small fraction of all OTC derivative transactions and are used primarily for internal hedging within groups. As such, those transactions do not significantly contribute to systemic risk and interconnectedness with the rest of the financial system. The exemption for those transactions from reporting requirements has, however, limited the ability of ESMA, the ESRB and other authorities to clearly identify and assess the risks taken by non-financial counterparties. To ensure more visibility on intragroup transactions, considering their potential interconnectedness with the rest of the financial system and taking into account recent market developments, in particular strains on energy markets as a result of Russia’s unprovoked and unjustified aggression against Ukraine, that exemption should be removed. (15)To ensure that competent authorities are at all times aware of exposures at entity and group level and are able to monitor such exposures, competent authorities should establish effective cooperation procedures to calculate the positions in contracts not cleared at an authorised or recognised CCP andto actively evaluate and assess the level of exposure in OTC derivative contracts at entity and group level. (16)It is necessary to ensure that Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council relating to the criteria for establishing which OTC derivative contracts are objectively measurable as reducing risks continues to be appropriate in light of market developments. It is also necessary to ensure that the clearing thresholds laid down in that Commission Delegated Regulation relating to values of those thresholds properly and accurately reflect the different risks and characteristics in derivatives, other than interest rate, foreign exchange, credit and equity derivatives. ESMA should therefore also review and clarify, where appropriate, that Commission Delegated Regulation and propose amending it if necessary. ESMA is encouraged to consider and provide, inter alia, more granularity for commodity derivatives. That granularity could be achieved by separating the clearing thresholds by sector and type, such as differentiating between agriculture, energy or metal related commodities or differentiating those commodities based on other features such as environmental, social and governance criteria, environmentally sustainable investments or crypto-related features. During the review, ESMA should endeavour to consult relevant stakeholders that have specific knowledge on particular commodities. (17)Non-financial counterparties that have to exchange collateral for OTC derivative contracts not cleared by a CCP should have sufficient time to negotiate and test the arrangements to exchange such collateral. (18)To ensure a uniform application of the risk-management procedures requiring the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivative contracts entered into by financial counterparties and non-financial counterparties, the European Supervisory Authorities (ESAs) should take the necessary actions to ensure such uniform application. (19)To ensure a consistent and convergent approach amongst competent authorities throughout the Union, authorised CCPs or legal persons that wish to be authorised under Article 14 of Regulation (EU) No 648/2012 to provide clearing services and activities in financial instruments should also be able to be authorised to provide clearing services and other activities in relation to non-financial instruments. Regulation (EU) No 648/2012 applies to CCPs as entities, and not to specific services, as set out in Article 1(2) of that Regulation. When a CCP clears non-financial instruments, in addition to financial instruments, the CCP’s competent authority should be able to ensure that the CCP complies with all requirements of Regulation (EU) No 648/2012 for all services it offers. (20)Union CCPs face challenges in expanding their product offer and experience difficulties in bringing new products to the market. Those challenges and difficulties can be explained by certain provisions of Regulation (EU) No 648/2012 that render some authorisation procedures too long, complex and uncertain in their outcome. The process of authorising Union CCPs or extending their authorisation should therefore be simplified, while ensuring the appropriate involvement of ESMA and the college referred to in Article 18 of Regulation (EU) No 648/2012. First, to avoid significant, and potentially indefinite, delays when competent authorities assess the completeness of an application for an authorisation, the competent authority should swiftly acknowledge receipt of that application and quickly verify whether the CCP has provided the documents required for the assessment. To ensure that Union CCPs submit all required documents with their applications, ESMA should develop draft regulatory and implementing technical standards specifying which documents should be provided, what information those documents should contain and in which format they should be submitted. Second, to ensure an efficient and concurrent assessment of applications, CCPs should be able to submit all documents via a central database where they should be shared instantaneously with the CCP’s competent authority, ESMA and the college. Third, a CCP’s competent authority, ESMA and the college should, during the assessment period, engage and ask the CCP any questions to ensure a swift, flexible, and cooperative process for a comprehensive review. To avoid duplication and unnecessary delays, all questions and subsequent clarifications should also be shared simultaneously between the CCP’s competent authority, ESMA and the college. (21)There is currently uncertainty as to when an additional service or activity is covered by a CCP’s existing authorisation. It is necessary to address that uncertainty and to ensure proportionality when the proposed additional service or activity does not increase the risks for the CCP. It is therefore necessary to lay down that applications in those cases should not undergo the full assessment procedure. For that reason, it should be specified which additional clearing services and activities are non-material, and thus do not increase the risks for a Union CCP, and should be approved through a non-objection procedure by that CCP’s competent authority. That non-objection procedure should be applied where the CCP intends to clear one or more financial instruments belonging to the same classes of financial instruments for which it has been authorised to clear, provided such financial instruments are traded on a trading venue for which the CCP already provides clearing services or performs activities and the proposed additional clearing service or activity does not involve a payment in a new currency. That non-objection procedure should also be applied where the CCP adds a new Union currency in a class of financial instruments already covered by the CCP’s authorisation, or where the CCP adds one or more additional tenors to a class of financial instruments already covered by the CCP’s authorisation provided that the maturity range is not significantly extended. In addition, a CCP should also be able to ask its competent authority for the non-objection procedure to apply where that CCP considers that the proposed additional service or activity would not increase its risks, in particular where the new clearing service or activity is similar to the services the CCP is already authorised to provide. The non-objection procedure should not require a separate opinion from ESMA and the college since such requirement would be disproportionate. Instead, ESMA and the college should be able to provide input to the CCP’s competent authority through the joint supervisory team established for that CCP. (22)To foster a cooperative supervision of CCPs on an ongoing basis, the college should issue an opinion where a competent authority considers withdrawing a CCP’s authorisation and when a competent authority conducts the annual review and evaluation of that CCP. (23)To ensure the consistent functioning of all colleges and to further enhance supervisory convergence, ESMA should manage and chair the college for each Union CCP and should be granted the right to vote in that college. (24)ESMA should be able to contribute more effectively to ensuring that Union CCPs are safe, robust and competitive in providing their services throughout the Union. Therefore, ESMA should, in addition to the supervisory competences currently laid down in Regulation (EU) No 648/2012, also issue an opinion to the CCP’s competent authority about a CCP’s annual review and evaluation, the withdrawal of its authorisation and margin requirements. When issuing an opinion, ESMA should assess a CCP’s compliance with the applicable requirements, focusing in particular on identified cross‑border risks or risks to the financial stability of the Union. It is also necessary to further enhance supervisory convergence and to ensure that all stakeholders are informed of ESMA’s and the college’s assessment of a CCP’s activities. ESMA should therefore disclose, taking into account the need to protect confidential information, the fact that a competent authority does not comply or does not intend to comply with its opinion or the opinion of the college and any conditions or recommendations included therein. ESMA should be able to decide, on a case by case basis, to publish the reasons provided by the competent authority for not complying with the ESMA opinion or the college opinion or any conditions or recommendations contained therein. (25)It is necessary to ensure that the CCP complies with Regulation (EU) No 648/2012 on an ongoing basis, including after a non-objection procedure approving the provision of additional clearing services or activities, or after a non-objection procedure for the validation of a model change in which cases ESMA and the college do not issue a separate opinion. The review conducted by the competent authority of the CCP at least on an annual basis should therefore in particular consider such new clearing services or activities and any model changes. To ensure supervisory convergence and that Union CCPs are safe, robust and competitive in providing their services throughout the Union, the report of the competent authority should be subject to an opinion by ESMA and the college and should be submitted every year. (26)ESMA should have the means to identify potential risks to the Union’s financial stability. ESMA should therefore, in cooperation with the EBA, EIOPA, and the ECB in the framework of the tasks concerning the prudential supervision of credit institutions within the single supervisory mechanism conferred upon it in accordance with Council Regulation (EU) No 1024/2013, identify the interconnections and interdependencies between different CCPs and legal persons, including shared clearing members, clients and indirect clients, shared material service providers, shared material liquidity providers, cross-collateral arrangements, cross-default provisions and cross-CCP netting, cross-guarantee agreements and risks transfers and back-to-back trading arrangements. (27)The central banks of issue of the Union currencies of the financial instruments cleared by authorised CCPs that have requested membership of the CCP Supervisory Committee are non-voting members of that committee. They only participate to its meetings for Union CCPs in the context of discussions about the Union-wide assessments of the resilience of those CCPs to adverse market developments and relevant market developments. Contrary to their involvement in the supervision of third-country CCPs, central banks of issue are thus insufficiently involved on supervisory matters for Union CCPs that are of direct relevance to the conduct of monetary policy and the smooth operation of payments systems, which leads to insufficient consideration of cross-border risks. It is therefore appropriate that those central banks of issue are able to attend as non-voting members all meetings of the CCP Supervisory Committee when it convenes for Union CCPs. (28)It is necessary to ensure a prompt exchange of information, knowledge sharing and effective cooperation between the authorities involved in the supervision of authorised CCPs, and in particular where a swift decision by a CCP’s competent authority is required. It is therefore appropriate to set up a joint supervisory team for each Union CCP to assist those supervisory authorities, including by providing input to the CCP’s competent authority within the context of the non-objection procedure for extending a CCP’s existing authorisation, assisting in establishing the frequency and depth of a CCP’s review and evaluation, and participating to on-site inspections. Considering that a CCP’s competent authority remains ultimately responsible for the final supervisory decisions, the joint supervisory teams should work under the auspices of the CCP’s competent authority for which the team is established and should be composed of staff members from the CCP’s competent authority, ESMA and certain members of the college. Other members of the college should also be able to request to participate justifying the request based on their assessment of the impact that the CCP's financial distress could have on the financial stability of their respective Member State. (29)To enhance the ability of relevant Union bodies to have a comprehensive overview of market developments relevant for clearing in the Union, monitor the implementation of certain clearing related requirements of Regulation (EU) No 648/2012 and collectively discuss the potential risks arising from the interconnectedness of different financial actors and other issues related to the financial stability it is necessary to establish a cross-sectoral monitoring mechanism bringing together the relevant Union bodies involved in the supervision of Union CCPs, clearing members and clients. Such Joint Monitoring Mechanism should be managed and chaired by ESMA as the Union authority involved in the supervision of Union CCPs and supervising systemically important third-country CCPs. Other participants should include representatives from the Commission, the EBA, EIOPA, the ESRB, the ECB and the ECB in the framework of the tasks concerning the prudential supervision of credit institutions within the single supervisory mechanism conferred upon it in accordance with Council Regulation (EU) No 1024/2013. (30)To inform future policy decisions, ESMA, in cooperation with the other bodies participating in the Joint Monitoring Mechanism, should submit an annual report to the European Parliament, the Council and the Commission on the results of their activities. ESMA might institute a breach of Union law procedure pursuant to Article 17 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council,where, on the basis of the information received as part of the Joint Monitoring Mechanism and following the discussions held therein, ESMA considers that competent authorities fail to ensure clearing members’ and clients’ compliance with the requirement to clear at least a proportion of identified contracts at accounts at Union CCPs, or where ESMA identifies a risk to the financial stability of the Union due to an alleged breach or non-application of Union law. Before instituting such breach of Union law procedure, ESMA might issue guidelines and recommendations pursuant to Article 16 of that Regulation. Where, on the basis of the information received as part of the Joint Monitoring Mechanism and following the discussions held therein, ESMA considers that compliance with the requirement to clear at least a proportion of identified contracts at accounts at Union CCPs does not effectively ensure the reduction of Union clearing members’ and clients’ excessive exposure to Tier 2 CCPs, it should review and propose amending the relevant Commission Delegated Regulation specifying further that requirement, proposing to set, where necessary, an appropriate adaptation period. (31)The 2020 market turmoil as a result of the Covid-19 pandemic and the 2022 high prices on energy wholesale markets following Russia’s unprovoked and unjustified aggression against Ukraine showed that, while it is essential for competent authorities to cooperate and exchange information to address ensuing risks when events with cross-border impacts emerge, ESMA still lacks the necessary tools to ensure such coordination and a convergent approach at Union level. ESMA should therefore be able to convene meetings of the CCP Supervisory Committee, either on its own initiative or upon request, potentially with an enlarged composition, to coordinate effectively competent authorities’ responses in emergency situations. ESMA should also be able to ask, by simple request, information from market participants which is necessary for ESMA to perform its coordination function in those situations and to be able to issue recommendations to the competent authority. (32)To reduce the burden on CCPs and ESMA, it should be clarified that where ESMA undertakes a review of a third-country CCP’s recognition pursuant to Article 25(5), first subparagraph, point (b), that third-country CCP should not be obliged to submit a new application for recognition. It should, however, provide ESMA with all information necessary for such review. Consequently, ESMA's review of a third-country CCP’s recognition should not constitute a new recognition of that CCP. (33)The Commission should be able, when adopting an equivalence decision, to waive the requirement for that third country to have an effective equivalent system for the recognition of third-country CCPs. In considering where such an approach would be proportionate, the Commission might consider a range of different factors, including compliance with the Principles for Financial Market Infrastructures published by the Committee on Payments and Market Infrastructures and the International Organisation of Securities Commissions, the size of the third-country CCPs established in that jurisdiction and, where known, the expected activity in these third-country CCPs by clearing members and trading venues established in the Union.

(34)To ensure that cooperation arrangements between ESMA and the relevant competent authorities of third countries are proportionate, such arrangements should reflect the specific features of the scope of services provided, or intended to be provided, within the Union by CCPs authorised in that third-country and whether those services entail specific risks to the Union or to one or more of its Member States. The cooperation arrangements should therefore reflect the degree of risk that the CCPs established in a third country potentially present to the financial stability of the Union or of one or more of its Member States. (35)ESMA should therefore tailor its cooperation arrangements to different third-country jurisdictions based on the CCPs established in the respective jurisdiction. In particular, Tier 1 CCPs cover a wide range of CCP profiles hence ESMA should ensure that a cooperation arrangement is proportionate to the CCPs established in each third-country jurisdiction. ESMA should consider, amongst others, the liquidity of the markets concerned, the degree to which the CCPs’ clearing activities are denominated in euro or other Union currencies and the extent to which Union entities use the services of such CCPs. Considering that the vast majority of Tier 1 CCPs provide clearing services to a limited extent to clearing members and trading venues established in the Union, ESMA’s scope of assessment and information to be requested should also be limited in all those jurisdictions. To limit information requests for Tier 1 CCPs, a pre-defined range of information should in principle be requested by ESMA annually. Where the risks from a Tier 1 CCP or jurisdiction are potentially greater, more, and at least quarterly, requests and a wider scope of information requested would be justified. However, any cooperation arrangements in place when this Regulation enters into force should not be required to be adjusted unless the relevant third-country authorities so request. (36)Where recognition is provided under Article 25(2b) of Regulation (EU) No 648/2012, considering that those CCPs are of systemic importance for the Union or one or more of its Member States, the cooperation arrangements between ESMA and the relevant third-country authorities should cover the exchange of information for a broader range of information and with increased frequency. In that case, the cooperation arrangements should also entail procedures to ensure such a Tier 2 CCP is supervised pursuant to Article 25 of that Regulation. ESMA should ensure it can obtain all information necessary to fulfil its duties under that Regulation, including information necessary to ensure compliance with Article 25(2b) of that Regulation and to ensure that information is shared where a CCP has been granted, partially or fully, comparable compliance. To enable ESMA to carry out full and effective supervision of Tier 2 CCPs, it should be clarified that those CCPs should provide ESMA with information periodically. (37)To ensure that ESMA is also informed about how a Tier 2 CCP is prepared for, can mitigate and recover from financial distress, the cooperation arrangements should include the right for ESMA to be informed where a Tier 2 CCP establishes a recovery plan or where a third-country authority establishes resolution plans. ESMA should also be informed on the aspects relevant for the financial stability of the Union, or of one or more of its Member States, and on how individual clearing members, and to the extent known clients and indirect clients, could be materially affected by the implementation of such a recovery or resolution plan. The cooperation arrangements should also indicate that ESMA should be informed when a Tier 2 CCP intends to activate its recovery plan or where the third-country authorities have determined that there are indications of an emerging crisis situation that could affect the operations of the CCP, its clearing members, clients and indirect clients. (38)To mitigate potential risks for the financial stability of the Union, or of one or more of its Member States, CCPs and clearing houses should not be allowed to be clearing members of other CCPs nor should CCPs be able to accept to have other CCPs as clearing members or indirect clearing members. (39)The recent events on commodity markets as a result of Russia’s unprovoked and unjustified aggression against Ukraine illustrate the fact that non-financial counterparties do not have the same access to liquidity as financial counterparties. Therefore, non-financial counterparties should not be allowed to offer client clearing services and should be only allowed to keep accounts at the CCP for assets and positions held for their own account. Where a CCP has or intends to accept non-financial counterparties as clearing members that CCP should ensure that the non-financial counterparties can fulfil the margin requirements and default funds contributions, including in stressed conditions. Considering non-financial counterparties are not subject to the same prudential requirements and liquidity safeguards as financial counterparties, their direct access to CCPs should be monitored by the competent authorities of CCPs accepting them as clearing members. .The competent authority for the CCP should report to ESMA and the college on a regular basis on the appropriateness of accepting non-financial counterparties as clearing members. ESMA might issue an opinion on the appropriateness of such arrangements following an ad-hoc peer review. (40)To ensure clients and indirect clients have better visibility and predictability of margin calls, and thus further develop their liquidity management strategies, clearing members and clients providing clearing services should ensure transparency towards their clients. Due to their closer relationship with CCPs and their professional experience with central clearing and liquidity management, clearing members are best placed to communicate in a clear and transparent manner to clients how CCP models work, including in stress events, and the implications such events can have on the margins clients are requested to post, including any additional margin clearing members themselves may ask. A better understanding of CCP margin models can improve clients’ ability to reasonably predict margin calls and prepare themselves for collateral requests, particularly in stress events. (41)To ensure that margin models reflect current market conditions, CCPs should continuously and not only regularly revise the level of their margins taking into account any potentially procyclical effects of such revisions. When calling and collecting margins on an intraday basis, CCPs should further consider the potential impact of their intraday margin collections and payments on the liquidity position of their participants. (42)To ensure the liquidity risk is accurately defined, the entities whose default a CCP should take into account to determine such risk should be expanded to cover not only the default of clearing members but also of liquidity service providers, settlement service providers or any other service providers. (43)To facilitate access to clearing to those entities that do not hold sufficient amounts of highly liquid assets and in particular energy companies, under conditions to be specified by ESMA and to ensure a CCP takes those conditions into account when calculating its overall exposure to a bank that is also a clearing member, commercial bank and public bank guarantees should be considered eligible collateral. In addition, given their low credit risk profile, it should be explicitly specified that public guarantees are also eligible as collateral. Finally, a CCP should, when revising the level of the haircuts it applies to the assets it accepts as collateral, take into account any potential procyclical effects of such revisions. (44)To facilitate CCPs’ ability to respond promptly to market developments that may require amendments to their risk models, the process of the validation of changes to such models should be simplified. Where a change is non-significant, a non-objection validation procedure should apply. To ensure supervisory convergence, Regulation (EU) No 648/2012 should specify the changes that should be considered as significant. This should be the case where certain conditions would be met referring to different aspects of the CCP’s financial position and overall risk level. (45)Regulation (EU) No 648/2012 should be reviewed no later than 5 years after the date of entry into force of this Regulation. This should allow time to apply the changes introduced by this Regulation. Whilst a review of Regulation (EU) No 648/2012 in its entirety should be carried out, that review should focus on the effectiveness and efficiency of that Regulation in meeting its aims, improving the efficiency and safety of Union clearing markets and preserving financial stability of the Union. The review should also consider the attractiveness of Union CCPs, the impact of this Regulation on encouraging clearing in the Union, and the extent to which the enhanced assessment and management of cross-border risks have benefited the Union. (46)To ensure consistency of Regulation (EU) 2017/1131 of the European Parliament and of the Council with Regulation (EU) No 648/2012 and to preserve the integrity and stability of the internal market, it is necessary to lay down in Regulation (EU) 2017/1131 a uniform set of rules to address counterparty risk in financial derivative transactions performed by money market funds (MMF), when the transactions have been cleared by a CCP that is authorised or recognised under Regulation (EU) No 648/2012. As central clearing arrangements mitigate counterparty risk that is inherent in financial derivative contracts, it is necessary to take into consideration whether a derivative has been centrally cleared by a CCP that is authorised or recognised under that Regulation, when determining the applicable counterparty risk limits. It is also necessary for regulatory and harmonisation purposes, to lift counterparty risk limits only where the counterparties use CCPs which are authorised or recognised in accordance with that Regulation, to provide clearing services to clearing members and their clients. (47)To ensure consistent harmonisation of rules and supervisory practice on applications for authorisation, extension of authorisation and model validations the active account requirement and the CCP participation requirements, the Commission should be empowered to adopt regulatory technical standards developed by ESMA with regard to the following: the documents CCPs are required to submit when applying for authorisation, extension of authorisation and validation of model changes; the proportion of activity in the relevant derivative contracts that should be held in active accounts at Union CCPs and the calculation methodology to be used to calculate that proportion; the scope and details of the reporting by Union clearing members and clients to their competent authorities on their clearing activity in third-country CCPs and whilst providing the mechanisms triggering a review of the values of the clearing thresholds following significant price fluctuations in the underlying class of OTC derivatives to also review the scope of the hedging exemption and thresholds for the clearing obligation to apply; and the elements to be considered when laying down the admission criteria to a CCP. The Commission should adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 of the Treaty on the Functioning of the European Union (TFEU) and in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. (48)To ensure uniform conditions for the implementation of this Regulation, the Commission should also be empowered to adopt implementing technical standards developed by ESMA with regard to the format of the required documents for applications and the format of the reporting by Union clearing members and clients to their competent authorities on their clearing activity in third-country CCPs. The Commission should adopt those implementing technical standards by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1095/2010. (49)To ensure the list of third countries whose entities may not benefit from those exemptions despite not being identified in those lists is relevant for the objectives of Regulation (EU) No 648/2012, to ensure the consistent harmonisation of the obligation to clear certain transactions in an account with an authorised CCP where ESMA undertakes an assessment pursuant to Article 25(2c) and to ensure the list of non-material changes for the non-objection procedure to apply remains relevant, the power to adopt acts in accordance with Article 290 of the TFEU should be delegated to the Commission to adjust the transactions in scope of the obligation and to change the list of non-material changes. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert group