The failure of a financial institution has the potential to create contagion to other institutions in particular where normal insolvency proceedings pose such a threat to the stability of the financial system as a whole. In these cases, the State may be compelled to rescue the institution using taxpayers’ money, as State inaction could result in a systemic crisis and imply huge losses for the economy. State intervention has recently been required, at a cost to the taxpayer, to rescue many banks so as to dampen such a systemic crisis. In response, EU prudential regulation for banks was strengthened considerably and, importantly, a new framework – the Bank Recovery and Resolution Directive (BRRD) – empowering relevant authorities to ensure the orderly failure of a bank was established. It requires banks to prepare more effectively for managing financial distress, provides the competent authorities with powers for early intervention in a bank that is failing or likely to fail, establishes a common set of resolution tools for managing failure and allocates any financial losses among stakeholders in the bank. The BRRD, thus, facilitates the restructuring of a bank by public authorities that is failing or likely to fail, while minimising any cost for taxpayers. A central counterparty (CCP) intervenes between counterparties to financial transactions to assume and carry out their rights and obligations, acting as the buyer to every seller and the seller to every buyer for a specified set of contracts. While CCPs are less vulnerable to failure compared to banks, they are not immune. There is an international consensus that systemic financial risks in all financial institutions, and not just banks, should be carefully monitored and addressed. The recent crisis has shown that any public intervention to address risks in financial institutions should be swift and with minimum recourse to taxpayer funds. It is widely acknowledged that an EU-wide recovery and resolution framework is most urgently required for CCPs. The Financial Stability Board (FSB), a top-level international grouping of regulators working under the aegis of the G20 to reform the financial regulatory landscape in the wake of the crisis and to address emerging risks, has also prioritised this work. The business model of CCPs implies a significant concentration of financial risk, primarily from banks as their largest users, but also by other financial actors. It is inherently cross-border within an integrated EU and global market. Moreover, the systemic significance of CCPs is certain to increase further due to the G20-commitment to clear over-the-counter (OTC) derivatives via CCPs, transferring risks inherent in these instruments away from banks and concentrating them on CCPs and ensuring their centralised risk management. While being a low-probability event, the failure of a CCP could, via its central position in the markets and notably its direct links to banks, cause widespread contagion within the financial system if not managed in an orderly manner. Accordingly, a legislative framework is required that empowers relevant authorities to address this financial-stability risk by rapidly restructuring and winding-up the operations of a CCP in an orderly way in case of threatened systemic failure. In addition, legislative measures should provide incentives for sound risk management of CCPs and protect the clients of the large banks which use the CCPs clearing services, and taxpayers from large losses in the event of resolution.