COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the documents 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 and Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directives 2009/65/EU, 2013/36/EU and (EU) 2019/2034 as regards the treatment of concentration risk towards central counterparties and the counterparty risk on centrally cleared derivative transactions
Date: 2022-12-07
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: capital market, credit institution, financial control, financial derivative, financial legislation, financial supervision, investment company, payment system, private-sector liquidity, securities

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   EUROPEAN COMMISSION  Brussels, 7.12.2022  SWD(2022) 698 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT    Accompanying the documents   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  and  Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directives 2009/65/EU, 2013/36/EU and (EU) 2019/2034 as regards the treatment of concentration risk towards central counterparties and the counterparty risk on centrally cleared derivative transactions {COM(2022) 697 final} - {SEC(2022) 697 final} - {SWD(2022) 697 final}  
 
 
Need for action 

EU  financial  markets  are  critically  dependent  on  some  services  provided  by  certain  third-
country  central  counterparties  (CCPs),  leading  to  significant  financial  stability  risks  for  the 
EU.  The  United  Kingdom  (UK)  is  the  main  location  for  clearing  euro-denominated 
derivatives, with  a market  share of more than 90%. The  European Central  Bank (ECB)  and 
the  Commission  identified  clearing  as  a  significant  financial  stability  risk  for  the  EU  if  EU 
market participants were to abruptly lose access to UK CCPs. This resulted in the adoption of 
an  equivalence  decision  in  September  2020.  In  this  decision,  the  Commission  reiterated  the 
message to EU market participants to reduce their excessive exposures to CCPs established in 
the UK. Such reduction however has not happened to date. 

Engagement with relevant EU bodies such as the European Securities and Markets Authority 
(ESMA),  the  ECB,  the  European  Systemic  Risk  Board  and  the  Single  Supervisory 
Mechanism,  within  an  ad-hoc  working  group  on  clearing  established  by  the  Commission, 
confirmed the existence of the problem and its risks for financial stability. Discussions within 
the working group have led to conclude that significantly reducing those excessive exposures 
in an orderly and controlled manner would necessitate a combination of legislative and non-
legislative changes in the years to come. These changes would be needed to: (i) improve the 
attractiveness of clearing in the EU; (ii) encourage infrastructure development in the EU; and 
(iii)  enhance  supervisory  arrangements  in  the  EU  in  order  to  ultimately  address  relevant 
financial stability risks. 

Without  further  EU  action,  market  participants  will  very  likely  continue  to  clear  in  those 
systemic third-country CCPs, thus maintaining, even increasing, the over-reliance described. 
This carries significant financial stability risks in case of a stress-scenario involving a third-
country CCP or in case of a sudden loss of access to its services. 

Possible solutions 

Available  policy  options  were  identified  on  the  basis  of  ESMA’s  2021  report  assessing 
systemically  important  UK  CCPs,  the  discussions  with  the  above  EU  bodies  and  in  the 
working group on clearing and a targeted public consultation. The measures considered in the 
impact assessment aim to address problems on both the supply and demand side as well as the 
increasing EU cross-border risks which arise as a consequence of growing EU clearing flows. 

On  the  supply  side,  in  order  to  improve  the  attractiveness  of  CCPs  located  in  the  EU  for 
market participants, several options are considered to streamline the procedures or introduce a 
simplified mechanism allowing CCPs to make changes on their models and parameters in  a 
swift and business friendly way. 

On  the  demand  side,  in  order  to  encourage  clearing  in  EU  CCPs,  several  options  are 
considered:  one  disincentivising  banks’  excessive  exposures  to  CCPs,  one  requiring  market 
participants to maintain an active account at EU CCPs, one broadening the scope of entities 
clearing in the EU, one facilitating access to clearing for clients and indirect participants, and 
a combination of these options. 

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Finally,  in  order  to  strengthen  the  framework  for  EU  CCP  supervision  to  better  take  into 
account  cross-border risks, thus ensuring financial stability, two options are considered, one 
streamlining  the  supervisory  framework  and  introducing  joint  supervisory  teams  under  the 
responsibility  of  the  national  supervisors,  and  the  other  creating  a  single  supervisor  for  EU 
CCPs. 

Several  options  were  discarded  in  the  first  stage,  notably  mandating  clearing  in  the  EU  or 
requiring  that  the  clearing  obligation  be  fulfilled  in  EU  CCPs  or  less  risky  third-country 
CCPs.  The  following  options  were  also  discarded  in  the  first  stage:  granting  all  EU  CCPs 
access  to  central  bank  facilities,  extending  the  Target  2  operating  hours  and  broadening  the 
scope of the clearing obligation. 

Impacts of the preferred option 

The  analysis  selected  preferred  options  based  on  their  contribution  to  specific  objectives  of 
this initiative which are to: (i) improve the attractiveness of EU CCPs, (ii) encourage clearing 
in EU CCPs, and (iii) allow for a stronger consideration of cross-border risks, as well as their 
cost-effectiveness and coherence. 

On  the  supply  side,  a  combination  of  streamlined  procedures  and  an  ex-post  validation 
mechanism was selected as the preferred option. This would allow to achieve simplification 
of  the  current  procedures  to  the  greatest  extent  possible  while  preserving  financial  stability. 
The  assessment  concludes  that  this  combination  would  be  best  suited  to  achieve  the  first 
specific objective (improving the attractiveness of EU CCPs). As regards the second specific 
objective  of  encouraging  clearing  in  the  EU,  this  option  could  indirectly  contribute  to  it  by 
increasing the attractiveness of CCPs located in the EU for market participants. At the same 
time,  it  would  reduce  administrative  and  opportunity  costs  for  EU  CCPs  more  than  either 
option considered in isolation. 

On  the  demand  side,  the  preferred  option  combines  limiting  banks’  excessive  exposures  to 
CCPs,  requiring  the  establishment  of  an  active  account,  broadening  the  scope  of  market 
participants clearing in the EU and facilitating clearing by clients in order to remove obstacles 
to clearing by market participants that usually clear as clients. This will help address the over-
reliance on third-country systemically important CCPs. It would achieve the specific objective 
of  enhancing  clearing  in  the  EU  more  than  each  option  considered  individually  and  would 
strike  a  good  balance  between  attaining  the  objective  and  limiting  negative  impacts  on  the 
market. It would clearly establish a requirement for increasing clearing volumes in EU CCPs, 
through  the  active  account  measure.  At  the  same  time,  it  would  establish  a  credible 
framework  for  ensuring  compliance  by  banks  and  investment  firms  –  which  are  the  most 
important financial counterparties. This option is considered the most suitable and feasible, as 
it is expected to avoid disruptive impacts on the competitiveness of EU clearing members and 
could  be  adapted  and  calibrated  to  take  into  account  cost  impacts  for  smaller  clients,  while 
allowing for a gradual reduction in exposures to systemically important CCPs, thus reducing 
the risks for the EU’s financial stability. 

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With  regards  to  supervision,  based  on  the  assessment  and  comparison  of  all  options,  the 
analysis shows that targeted amendments  to  the current  supervisory framework are likely to 
be the most proportionate approach, albeit not necessarily being the most effective option for 
strengthening the consideration of cross-border risks. This option also considers concerns that 
more  centralised  CCP  supervision  at  EU  level  would  not  be  consistent  with  the  ultimate 
responsibility for potentially supporting a CCP in a crisis, which under the CCP Recovery and 
Resolution Regulation remains with each CCP’s Member State of establishment. 

In terms of costs, while financial stability is a public good and therefore not quantifiable, the 
options  retained  can  be  calibrated  to  ensure  that  costs  to  market  participants,  CCPs,  ESMA 
and national authorities are proportionate. 

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