COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document 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 the requirements for the recognition of third-country CCPs
Date: 2017-06-13
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU office or agency, European System of Central Banks, capital market, central bank, financial control, financial instrument, financial legislation, financial transaction, market supervision, third country

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   EUROPEAN COMMISSION  Strasbourg, 13.6.2017  SWD(2017) 247 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document 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 the requirements for the recognition of third-country CCPs    {COM(2017) 331 final} {SWD(2017) 246 final}  
 
 
Executive Summary Sheet 
Impact assessment on possible amendments to Regulation (EU) No 648/2012 of the European Parliament and of 
the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories 

A. Need for action 

Why? What is the problem being addressed?  
In accordance with the 2009 G20 Pittsburgh agreement to reduce the systemic risk linked to the extensive use of 
derivatives, the EU adopted the European Market Infrastructure Regulation (EMIR) in 2012. A key pillar of EMIR 
is  the  requirement  for  standardised  OTC  derivatives  contracts  to  be  cleared  through  a  Central  Counterparty 
(CCP), which entered into force in December 2015. Mandatory clearing for certain asset classes as well as an 
increased  voluntary  use  of  central  clearing  amid  growing  awareness  of  its  benefits  among  market  participants 
have led to a rapid growth of the volume of CCP activity since the adoption of EMIR  – in the EU and globally. 
Against  the  backdrop  of  the  associated  increasing  concentration  of  credit  risk  in  these  infrastructures  the 
supervisory arrangements for EU and third-country CCPs included in EMIR could be made more effective.  
The current arrangements under EMIR for supervision of EU CCPs involving colleges coordinated by the home-
country authority raise a number of concerns: (i) given the importance of a limited number of CCPs for the EU 
financial system as a whole the reliance mainly on the home-country supervisory authority raises concerns; (ii) 
diverging  supervisory  practices  across  the  EU  could  create  risks  of  regulatory  and  supervisory  arbitrage  for 
CCPs and, indirectly, for their clearing members and clients; (iii) the role of central banks as issuers of currency 
is not adequately reflected in CCP colleges.  
Concerns also arise in respect of supervisory arrangements for third-country CCPs operating in the EU: (i) the 
implementation  of  EMIR  rules  on  equivalence  and  recognition  has  shown  some  shortcomings,  in  particular  as 
regards  ongoing  supervision  of  recognised  third-country  CCPs,  (ii)  there  is  considerable  potential  for 
misalignments  between  supervisory  and  central-bank  objectives  within  colleges  in  the  context  of  third-country 
CCPs  where  non-EU  authorities  are  involved;  (iii)  possible  changes  to  CCP  rules  and/or  the  regulatory 
framework  in  a  third-country  could  create  an  un-level  playing  field  between  EU  and  third-country  CCPs  and 
scope  for  regulatory  or  supervisory  arbitrage  as  there  is  currently  no  mechanism  to  ensure  that  the  EU  is 
informed automatically of such changes. A substantial volume of euro-denominated derivatives transactions and 
other  transactions  subject  to  the  EU  clearing  obligation  is  currently  cleared  by  UK  CCPs;  this  reinforces  the 
concerns  set  out,  in  view  of  the  proportion  of  such  transactions  being  cleared  in  CCPs  outside  the  EU's 
jurisdiction following the UK's exit from the EU. 

What is this initiative expected to achieve?  
The initiative is expected to increase the consistency of supervisory arrangements for CCPs established in the 
EU, including adequate recognition of the specific role of the Central Bank of Issue (CBI), and to enhance the 
EU's ability to monitor, identify and mitigate third-country CCP risks.  
What is the value added of action at the EU level?  
EMIR governs the supervisory framework for CCPs established in the EU and the regime for third-country CCPs 
providing clearing services in the EU. Increasing supervisory consistency at EU level will help to address: (i) the 
systemic  risks  posed  by  highly  integrated  and  interconnected  CCPs,  which  operate  on  a  cross-border  basis 
beyond  the  reach  of  national  supervisors;  and  (ii)  risks  arising  from  diverging  supervisory  practices,  which 
Member States cannot solve on their own. Enhancing the intensity of EU supervision of systemic third-country 
CCPs can also address better threats to the financial stability of the EU as a whole. 

B. Solutions 
What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
Regarding  the  consistency  of  supervisory  arrangements  for  CCPs  established  in  the  EU,  three  options  have 
been  considered:  (1)  maintaining  the  status  quo  (i.e.  no  policy  action);  (2)  the  establishment  of  an  EU 
supervisory mechanism; and (3) the establishment of a single EU supervisor. The preferred choice is option 2, 
which  would  leave  existing  supervisory  powers  largely  with  national  supervisors  in  view  of  their  fiscal 
responsibility  while  creating  an  EU  supervisory  mechanism  to  handle  areas  of  common  interest  on  a  more 
centralised  basis  and  strengthen  CBIs'  input  into  the  supervisory  process.  This  option  is  also  the  most 
appropriate  to  achieve  the  objective  of  increasing  the  consistency  of  supervisory  arrangements  for  EU  CCPs 
while avoiding the shortcomings of option 3. 
With respect to the mitigation of third-country CCP risks, three options have been considered. Option 1 consists 
of maintaining the status quo (i.e. no policy action). Under option 2, third-country CCPs would be required to be 
established and authorised in the EU in order to provide services to EU counterparties or trading venues or to 
provide  clearing  services  in  EU  currencies.  Pursuant  to  option  3,  the  degree  and  intensity  of  EU  supervision 
would  be  proportionate  and  depend  on  the  risks  posed  by  third-country  CCPs  to  the  EU.  Different  criteria  or 
thresholds  could  be  set:  (i)  low  impact  CCPs  could  be  subject  to  an  enhanced  implementation  of  the  EMIR 
equivalence and recognition regime; and (ii) medium to high impact CCPs could be subject to a sliding scale of 
additional supervisory requirements. The impact assessment concludes that option 3 is the most appropriate to 

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achieve the objective of enhancing the EU's ability to monitor, identify and mitigate third-country CCP risks.  
Who supports which option?  
Stakeholder  feedback  was  obtained  through  three  Commission  public  consultations:  the  2015  consultation  on 
the  EMIR  Review,  the  2017  consultation  on  the  capital  markets  union  (CMU)  mid-term  review  and  the  2017 
consultation on the operations of the European Supervisory Authorities. On the supervision of CCPs established 
in the EU, respondents, among which a majority of companies, highlighted the need for enhanced supervisory 
convergence  at  EU  level  to  reflect  the  systemic  nature  of  CCPs,  while  ensuring  an  adequate  role  for  national 
authorities  and  CBIs.  On  the  supervision  of  third-country  CCPs,  ESMA  and  public  authorities  supported 
enhancing the existing recognition process, while a number of stakeholders, including industry representatives, 
warned against the risk of market fragmentation.    

C. Impacts of the preferred option 
What are the benefits of the preferred option (if any, otherwise main ones)?                                       
With regard to the consistency of supervisory arrangements for CCPs established in the EU, the preferred option 
would  improve  the  coherence  of  supervisory  arrangements,  while  ensuring  that  specific  areas  of  supervisory 
responsibility and related national fiscal responsibility remain aligned. This option would also ensure the proper 
involvement  of  CBIs  within  the  scope  of  their  responsibilities  and  provide  CCPs  and  market  participants  with 
more clarity and predictability in the way CCPs are supervised within the EU. By streamlining key elements of 
CCP supervision, the preferred option should lower costs both for supervisory authorities and CCPs. 
Regarding the mitigation of third-country CCP risks, the preferred option would enable EU authorities to better 
monitor and mitigate such risks and reinforce the overall stability of the EU financial system.  
Both preferred options will help lower the already low probability (but extremely high-impact) risk of a CCP failure 
through the enhanced ability of the relevant public authorities in the EU to prevent the build-up of systemic risk 
within EU CCPs and to mitigate the transmission of harmful financial distress through third-country CCPs. 
What are the costs of the preferred option (if any, otherwise main ones)?                                       
Regarding  the  consistency  of  supervisory  arrangements  for CCPs  established  in  the  EU,  the  preferred option, 
which  involves  setting  up  a  new  CCP  European  supervisory  mechanism,  would  have  no  impact  on  the  EU 
budget,  as  any  additional  costs  would  be  covered  by  supervisory  fees  collected  from  EU  CCPs.  These  would 
however be proportionate to their activity and would only represent a negligible fraction of their turnover. Hence, 
the preferred option is not expected to have a significant impact on the cost of clearing, whether it is for clearing 
members or their clients and indirect clients.  
Similarly, the changes envisaged to mitigate the risks posed by third-country CCPs would also have no impact 
on the budget of the EU, as any additional resources for the European mechanism would also be funded through 
the collection of supervisory fees from third-country CCPs. Beyond supervision-related costs, most of the costs 
clearing  counterparties  (clearing  members  and  their  clients)  would  face  would  relate  to  the  introduction  of  a 
location policy for Tier 2 CCPs, which would be triggered on the basis of objective criteria.    
How will businesses, SMEs and micro-enterprises be affected?  
The costs associated with enhanced supervision of EU and third-country CCPs could potentially be passed on to 
the  ultimate  clients  of  CCPs  including  businesses,  SMEs  and  micro-enterprises.  In  net  terms,  the  possible 
increase  of  the  costs  of  clearing  are  unlikely  to  be  significant,  in  particular  when  compared  to  the  benefits 
associated  with  the  proposal.  Businesses,  SMEs  and  micro-enterprises  will  benefit  from  increased  stability 
resulting from the enhanced ability of EU authorities to prevent the build-up of systemic risk within EU CCPs and 
to  mitigate  the  transmission  of  financial  distress  through  third-country  CCPs.  The  clarification  of  supervisory 
arrangements  both  for  EU  and  third-country  CCPs,  in  combination  with  the Commission's  recent  EMIR  REFIT 
initiative on the reduction of disproportionate costs for smaller counterparties, should help to further promote the 
use of central clearing, facilitate cross-border transactions within the EU and thus improve the ability of SMEs to 
access financial instruments, either to hedge their risks or to invest. 
Will there be significant impacts on national budgets and administrations?  
No. The amendments considered should not trigger relevant costs for national budgets and administrations. 
Will there be other significant impacts?   
No.   

When will the policy be reviewed?   
An  evaluation  of  EMIR  in  its  entirety  should  be  carried  out,  with  a  particular  focus  on  the  effectiveness  and 
efficiency  of  the  proposed  supervisory  arrangements  in  meeting  EMIR's  original  objectives.  This  evaluation 
should take place at least 5 years after the application of these amendments.  

D. Follow up 

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