Article 56 Application for registration
1. A trade repository shall submit an application for registration to ESMA. 2. ESMA shall assess whether the application is complete within 20 working days of receipt of the application. Where the application is not complete, ESMA shall set a deadline by which the trade repository is to provide additional information. After assessing an application as complete, ESMA shall notify the trade repository accordingly. 3. In order to ensure consistent application of this Article, ESMA shall develop draft regulatory technical standards specifying the details of the application for registration referred to in paragraph 1. ESMA shall submit those draft regulatory technical standards to the Commission by 30 September 2012. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 4. In order to ensure uniform conditions of application of paragraph 1, ESMA shall develop draft implementing technical standards specifying the format of the application for registration to ESMA. ESMA shall submit those draft implementing technical standards to the Commission by 30 September 2012. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Derivatives contracts are a key tool for Europe's banks and businesses to manage their risks, whether they are related to changes in interest rates, currency fluctuations or the default of a business counterpart. However, opaque derivatives markets also acted as an unwelcome contagion channel. Derivatives markets must therefore be regulated and supervised effectively to safeguard financial stability. Given the global nature of derivatives markets and in accordance with the 2009 G20 Pittsburgh agreement 1 to reduce the systemic risk linked to extensive use of derivatives, the EU adopted the European Market Infrastructure Regulation (EMIR) in 2012. 2 As a key pillar of EMIR standardised over-the-counter (OTC) derivatives contracts must be cleared through a Central Counterparty (CCP). A CCP is a market infrastructure that reduces systemic risk and enhances financial stability by standing between the two counterparties to a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk) and thereby reducing the risk for both. EMIR also introduced strict prudential, organisational and business conduct requirements for CCPs and established arrangements for their prudential supervision to minimise any risk to users of a CCP and underpin systemic stability. Since 2012 when EMIR was adopted, central clearing has been significantly expanding and CCPs have become increasingly concentrated and integrated across the EU and with third countries. The present proposal ensures that supervisory arrangements keep pace with these developments. It is proposed that the EU equips its Capital Markets Union with a more effective and consistent supervisory system for CCPs, in the interest of further market integration, financial stability and a level-playing field. CCPs have grown in importance since the adoption of EMIR and will expand further in the coming years In the five years since the adoption of EMIR, the volume of CCP activity – in the EU and globally - has grown rapidly both in scale and in scope. This is a sign that the legislation works and is fulfilling its purpose. As of end of June 2016, around 62% of the global value of all OTC derivatives contracts and asset classes (interest rates, credit default, foreign exchange, etc.) were centrally cleared by CCPs 3 , which is equivalent to $337 trillion. About 97% ($328 trillion) of all centrally-cleared derivatives contracts are interest-rate derivatives. At the end of 2015, about 60% of all OTC interest-rate derivatives were centrally cleared, while the corresponding figure by the end of 2009 was 36% 4 . Central clearing has similarly gained in importance in the credit derivatives (so-called CDS) market, with the proportion of outstanding CDSs cleared through CCPs increasing steadily since these data were first reported, i.e. 37% at the end of June 2016 while the corresponding figure was 10% at the end of June 2010 5 . The rapidly expanding role of CCPs in the global financial system not only reflects the introduction of central clearing obligations across different asset classes 6 , but also increased voluntary use of central clearing amid growing awareness of the benefits of central clearing among market participants (clearing obligations have applied only since June 2016) 7 . EMIR requires certain interest-rate derivatives and CDSs to be centrally cleared in line with similar requirements in other G20 countries 8 . Bank capital rules have been changed to incentivise central clearing and make bilateral clearing a costlier option in relative terms 9 , while bilateral transactions are subject to additional collateral requirements since March 2017 10 . The expansion in CCP activity is set to continue in the coming years. Mandatory clearing obligations are likely for additional asset classes 11 and the incentives to mitigate risks and costs are likely to lead to even more voluntary clearing. The May 2017 proposal to amend EMIR in a targeted manner, to improve its effectiveness and proportionality, will reinforce this trend, by creating further incentives for CCPs to offer central clearing of derivatives to counterparties. 12 Finally, deeper and more integrated capital markets as a result of the Capital Markets Union (CMU) will further increase the need for cross-border clearing in the EU, thus increasing the importance and the interconnectedness of CCPs within the financial system. Expanding role of CCPs raises concerns about the need to upgrade supervisory arrangements under EMIR , also in light of the establishment of the Capital Markets Union The growing importance of CCPs in the financial system and the associated concentration of credit risk in these infrastructures have drawn the attention of governments, regulators, supervisors, central banks and market participants. While the scale and scope of centrally-cleared transactions has expanded, the number of CCPs has remained relatively limited. There are currently 17 CCPs established in the EU, all of which are authorised under EMIR to offer their services within the Union - although not all CCPs are authorised to clear all asset classes (e.g. only 2 CCPs clear credit derivatives, only 2 CCPs clear inflation derivatives 13 ). 14 An additional 28 third-country CCPs have been recognised under EMIR's equivalence provisions, allowing them to offer their services in the EU. 15 Accordingly, clearing markets are integrated across the EU and are highly concentrated in certain asset classes . They are also highly interconnected. 16 While increased clearing via properly regulated and supervised CCPs reinforces systemic stability overall, the concentration of risk makes the failure of a CCP a low-probability but potentially extremely high-impact event. Given the centrality of CCPs to the financial system, the increasing systemic importance of CCPs gives rise to concerns. CCPs have themselves become a source of macro-prudential risk, as their failure could cause significant disruption to the financial system and would have systemic effects. For instance, large scale, uncontrolled termination and close-out of contracts cleared by CCPs could lead to liquidity and collateral strains across the market, causing instability in the underlying asset market and the wider financial system. Like some other financial intermediaries, CCPs are also potentially susceptible to “runs” due to clearing members losing confidence in the solvency of a CCP. This could create a liquidity shock for the CCP as it attempts to meet its obligations to return the principal collateral (i.e. initial margin). The impact of a CCP failure due to increased concentration of risk would be amplified by a growing interconnectedness between CCPs both directly and indirectly via their members (usually large global banks) and clients. In response, and in line with the G20 consensus 17 , the Commission adopted a proposal for a Regulation on CCP Recovery and Resolution in November 2016 18 . The objective of the proposal is to ensure that authorities are appropriately prepared to address a failing CCP, safeguarding financial stability and limiting taxpayer costs. The CCP Recovery and Resolution proposal refocused attention on the supervisory arrangements for EU and third-country CCPs included in EMIR and the extent to which these arrangements can be made more effective five years after adoption of EMIR. This proposal is currently under negotiations in the European Parliament and the Council. That ongoing work-stream needs to be coordinated and consistent with the current proposal. Supervisory arrangements for EU CCPs Under EMIR, EU CCPs are supervised by colleges of national supervisors, the European Securities and Markets Authority (ESMA), relevant members of the European System of Central Banks (ESCB), and other relevant authorities (e.g. supervisors of the largest clearing members, supervisors of certain trading venues and central securities depositories). These colleges can include as many as 20 member authorities and they rely on coordination by the home-country authority. These arrangements raise certain concerns in light of the current state of integration in the market that needs to be reflected in the supervisory arrangements. This is also important in order to advance the Capital Markets Union . First, the growing concentration of clearing services in a limited number of CCPs, and the consequential increase in cross-border activity, implies that CCPs in a small number of individual Member States are increasingly relevant for the EU financial system as a whole. Against this trend, the current supervisory arrangements relying mainly on the home-country authority (e.g. the home-country authority is ultimately responsible for important decisions such as the extension of the authorisation or the approval of outsourcing and interoperability arrangements) need to be reconsidered. Second, diverging supervisory practices for CCPs (e.g. different conditions for authorisation or model validation processes) across the EU can create risks of regulatory and supervisory arbitrage for CCPs and indirectly for their clearing members or clients. The Commission has drawn attention to these emerging risks and the need for more supervisory convergence in its Communication on CMU of September 2016 19 and in the public consultation on the operations of the European Supervisory Authorities (ESAs) 20 , both of which highlighted the challenges posed by heterogeneous supervisory practices. Third, the role of central banks - as issuers of currency - is not adequately reflected in CCP colleges. While the mandates of central banks and supervisors may overlap (in particular in areas such as interoperability, liquidity-risk controls etc.), there is a potential for misalignment when supervisory actions impact on key responsibilities of central banks in areas such as price stability, monetary policy and the payment systems. In crisis situations, their misalignments can amplify the risks to financial stability if the assignment of responsibilities between authorities remains unclear. Supervisory arrangements for third-country CCPs Today, a significant amount of financial instruments denominated in the currencies of the Member States are cleared by recognised third-country CCPs. For example, the notional amount outstanding at Chicago Mercantile Exchange (CME) in the US is EUR 1.8 trillion for euro-denominated interest-rate derivatives, and SEK 348 billion for SEK denominated interest-rate derivatives. This also raises a series of concerns. First, the implementation of EMIR’s system of equivalence and recognition has shown certain shortcomings in particular regarding ongoing supervision. In particular, after a third-country CCP has been recognised, ESMA has encountered difficulties in accessing information from the CCP, in conducting on-site inspections of the CCP and in sharing information with the relevant EU regulators, supervisors and central banks. As a result, there is a risk that third-country CCP practices and/or adjustments to risk management models go undetected and/or unaddressed, which may have important financial-stability implications for the EU entities. Second, the potential for misalignments between supervisory and central-bank objectives within colleges acquires an additional dimension in the context of third-country CCPs where non-EU authorities are involved. Third, there is a risk that changes to the CCP rules and/or regulatory framework in a third-country could negatively affect regulatory or supervisory outcomes, leading to an un-level playing field between EU and third-country CCPs and creating scope for regulatory or supervisory arbitrage. There is currently no mechanism to ensure that the EU is informed automatically of such changes and can take appropriate measures. Such concerns are likely to become more significant in the coming years because the global nature of capital markets means that the role played by third-country CCPs is set to expand. In addition to the 28 third-country CCPs already recognised by ESMA, a further 12 CCPs from 10 jurisdictions have applied for recognition 21 and are awaiting a decision of the Commission for the equivalence of their regulatory and supervisory regimes. Moreover, a substantial volume of euro-denominated derivatives transactions (and other transactions subject to the EU clearing obligation) is currently cleared in CCPs located in the United Kingdom. When the United Kingdom exits the EU, there will therefore be a distinct shift in the proportion of such transactions being cleared in CCPs outside the EU's jurisdiction, exacerbating the concerns outlined above. This implies significant challenges for safeguarding financial stability in the EU that need to be addressed. In light of these considerations, the Commission adopted a Communication on 4 May 2017 on responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union 22 . The Communication indicated that "further changes [to EMIR] will be necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the Capital Markets Union (CMU)". Need to improve current supervisory arrangements As the EU clearing landscape continues to evolve, the arrangements for crisis prevention and management of CCPs must be as effective as possible. EMIR and the Commission proposal for a Regulation on CCP Recovery and Resolution are important steps in this regard. However, five years after the adoption of EMIR, the growing size, complexity and cross-border dimension of clearing in the EU and globally have highlighted shortcomings in the supervisory arrangements for EU and third-country CCPs. The present proposal therefore sets out specific amendments to EMIR and the ESMA Regulation 23 , in particular to establish clear and coherent supervisory arrangements both for EU and third-country CCPs. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options in order to enhance supervision of CCPs at EU level, involve further the central banks of issue in the supervision of CCPs, and strengthen the ability of the EU to monitor, identify and mitigate third-country CCP risks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforce the overall stability of the EU financial system and to lower further the already low probability (but extremely high-impact) risk of a CCP failure, while keeping costs at a minimum for market participants. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 56 Application for registration):
1. For the purposes of Article 55(1), a trade repository shall submit either of the following to ESMA: (a) an application for registration; (b) an application for an extension of the registration where the trade repository is already registered under Chapter III of Regulation (EU) 2015/2365. 2. ESMA shall assess whether the application is complete within 20 working days of receipt of the application. Where the application is not complete, ESMA shall set a deadline by which the trade repository is to provide additional information. After assessing an application as complete, ESMA shall notify the trade repository accordingly. 3. To ensure the consistent application of this Article, ESMA shall develop draft regulatory technical standards specifying the following: (a) the details of the application for the registration referred to in point (a) of paragraph 1; (b) the details of the simplified application for the extension of the registration referred to in point (b) of paragraph 1. ESMA shall submit those draft regulatory technical standards to the Commission by 18 June 2020. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 4. To ensure uniform conditions of application of paragraph 1, ESMA shall develop draft implementing technical standards specifying the following: (a) the format of the application for registration referred to in point (a) of paragraph 1; (b) the format of the application for an extension of the registration referred to in point (b) of paragraph 1. With regard to point (b) of the first subparagraph, ESMA shall develop a simplified format. ESMA shall submit those draft implementing technical standards to the Commission by 18 June 2020. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Article 57 Notification of and consultation with competent authorities prior to registration
1. If a trade repository which is applying for registration is an entity which is authorised or registered by a competent authority in the Member State where it is established, ESMA shall, without undue delay, notify and consult that competent authority prior to the registration of the trade repository. 2. ESMA and the relevant competent authority shall exchange all information that is necessary for the registration of the trade repository as well as for the supervision of the entity’s compliance with the conditions of its registration or authorisation in the Member State where it is established.
Article 58 Examination of the application
1. ESMA shall, within 40 working days from the notification referred to in the third subparagraph of Article 56(2), examine the application for registration based on the compliance of the trade repository with Articles 78 to 81 and shall adopt a fully reasoned registration decision or decision refusing registration. 2. A decision issued by ESMA pursuant to paragraph 1 shall take effect on the fifth working day following its adoption.
Article 59 Notification of ESMA decisions relating to registration
1. Where ESMA adopts a registration decision or a decision refusing or withdrawing registration, it shall notify the trade repository within five working days with a fully reasoned explanation of its decision. ESMA shall, without undue delay, notify the relevant competent authority referred to in Article 57(1) of its decision. 2. ESMA shall communicate any decision taken in accordance with paragraph 1 to the Commission. 3. ESMA shall publish on its website a list of trade repositories registered in accordance with this Regulation. That list shall be updated within five working days following the adoption of a decision under paragraph 1.
Article 60 Exercise of the powers referred to in Articles 61 to 63
The powers conferred on ESMA or any official of or other person authorised by ESMA by Articles 61 to 63 shall not be used to require the disclosure of information or documents which are subject to legal privilege.
Article 61 Request for information
1. ESMA may by simple request or by decision require trade repositories and related third parties to whom the trade repositories have outsourced operational functions or activities to provide all information that is necessary in order to carry out its duties under this Regulation. 2. When sending a simple request for information under paragraph 1, ESMA shall: (a) refer to this Article as the legal basis of the request; (b) state the purpose of the request; (c) specify what information is required; (d) set a time limit within which the information is to be provided; (e) inform the person from whom the information is requested that he is not obliged to provide the information but that in case of a voluntary reply to the request the information provided must not be incorrect and misleading; and (f) indicate the fine provided for in Article 65 in conjunction with point (a) of Section IV of Annex I where the answers to questions asked are incorrect or misleading. 3. When requiring to supply information under paragraph 1 by decision, ESMA shall: (e) indicate the periodic penalty payments provided for in Article 66 where the production of the required information is incomplete; (f) indicate the fine provided for in Article 65 in conjunction with point (a) of Section IV of Annex I, where the answers to questions asked are incorrect or misleading; and (g) indicate the right to appeal the decision before ESMA’s Board of Appeal and to have the decision reviewed by the Court of Justice of the European Union (‘Court of Justice’) in accordance with Articles 60 and 61 of Regulation (EU) No 1095/2010. 4. The persons referred to in paragraph 1 or their representatives and, in the case of legal persons or associations having no legal personality, the persons authorised to represent them by law or by their constitution shall supply the information requested. Lawyers duly authorised to act may supply the information on behalf of their clients. The latter shall remain fully responsible if the information supplied is incomplete, incorrect or misleading. 5. ESMA shall, without delay, send a copy of the simple request or of its decision to the competent authority of the Member State where the persons referred to in paragraph 1 concerned by the request for information are domiciled or established.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 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 3 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 4 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 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 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. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . 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 vulnerabilit y . 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. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (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.
Revised version (Article 61 Request for information):
1. ESMA may by simple request or by decision require trade repositories and related third parties to whom the trade repositories have outsourced operational functions or activities to provide all information that is necessary in order to carry out its duties under this Regulation. 4. The persons referred to in paragraph 1 or their representatives and, in the case of legal persons or associations having no legal personality, the persons authorised to represent them by law or by their constitution shall supply the information requested. Lawyers duly authorised to act may supply the information on behalf of their clients. The latter shall remain fully responsible if the information supplied is incomplete, incorrect or misleading. 5. ESMA shall, without delay, send a copy of the simple request or of its decision to the competent authority of the Member State where the persons referred to in paragraph 1 concerned by the request for information are domiciled or established.
Article 62 General investigations
1. In order to carry out its duties under this Regulation, ESMA may conduct necessary investigations of persons referred to in Article 61(1). To that end, the officials and other persons authorised by ESMA shall be empowered to: (a) examine any records, data, procedures and any other material relevant to the execution of its tasks irrespective of the medium on which they are stored; (b) take or obtain certified copies of or extracts from such records, data, procedures and other material; (c) summon and ask any person referred to in Article 61(1) or their representatives or staff for oral or written explanations on facts or documents relating to the subject matter and purpose of the inspection and to record the answers; (d) interview any other natural or legal person who consents to be interviewed for the purpose of collecting information relating to the subject matter of an investigation; (e) request records of telephone and data traffic. 2. The officials and other persons authorised by ESMA for the purposes of the investigations referred to in paragraph 1 shall exercise their powers upon production of a written authorisation specifying the subject matter and purpose of the investigation. That authorisation shall also indicate the periodic penalty payments provided for in Article 66 where the production of the required records, data, procedures or any other material, or the answers to questions asked to persons referred to in Article 61(1) are not provided or are incomplete, and the fines provided for in Article 65 in conjunction with point (b) of Section IV of Annex I, where the answers to questions asked to persons referred to in Article 61(1) are incorrect or misleading. 3. The persons referred to in Article 61(1) are required to submit to investigations launched on the basis of a decision of ESMA. The decision shall specify the subject matter and purpose of the investigation, the periodic penalty payments provided for in Article 66, the legal remedies available under Regulation (EU) No 1095/2010 and the right to have the decision reviewed by the Court of Justice. 4. In good time before the investigation, ESMA shall inform the competent authority of the Member State where the investigation is to be carried out of the investigation and of the identity of the authorised persons. Officials of the competent authority concerned shall, upon the request of ESMA, assist those authorised persons in carrying out their duties. Officials of the competent authority concerned may also attend the investigations upon request. 5. If a request for records of telephone or data traffic referred to in point (e) of paragraph 1 requires authorisation from a judicial authority according to national rules, such authorisation shall be applied for. Such authorisation may also be applied for as a precautionary measure. 6. Where authorisation as referred to in paragraph 5 is applied for, the national judicial authority shall control that the decision of ESMA is authentic and that the coercive measures envisaged are neither arbitrary nor excessive having regard to the subject matter of the investigations. In its control of the proportionality of the coercive measures, the national judicial authority may ask ESMA for detailed explanations, in particular relating to the grounds ESMA has for suspecting that an infringement of this Regulation has taken place and the seriousness of the suspected infringement and the nature of the involvement of the person subject to the coercive measures. However, the national judicial authority shall not review the necessity for the investigation or demand that it be provided with the information on ESMA’s file. The lawfulness of ESMA’s decision shall be subject to review only by the Court of Justice following the procedure set out in Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Derivatives contracts are a key tool for Europe's banks and businesses to manage their risks, whether they are related to changes in interest rates, currency fluctuations or the default of a business counterpart. However, opaque derivatives markets also acted as an unwelcome contagion channel. Derivatives markets must therefore be regulated and supervised effectively to safeguard financial stability. Given the global nature of derivatives markets and in accordance with the 2009 G20 Pittsburgh agreement 1 to reduce the systemic risk linked to extensive use of derivatives, the EU adopted the European Market Infrastructure Regulation (EMIR) in 2012. 2 As a key pillar of EMIR standardised over-the-counter (OTC) derivatives contracts must be cleared through a Central Counterparty (CCP). A CCP is a market infrastructure that reduces systemic risk and enhances financial stability by standing between the two counterparties to a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk) and thereby reducing the risk for both. EMIR also introduced strict prudential, organisational and business conduct requirements for CCPs and established arrangements for their prudential supervision to minimise any risk to users of a CCP and underpin systemic stability. Since 2012 when EMIR was adopted, central clearing has been significantly expanding and CCPs have become increasingly concentrated and integrated across the EU and with third countries. The present proposal ensures that supervisory arrangements keep pace with these developments. It is proposed that the EU equips its Capital Markets Union with a more effective and consistent supervisory system for CCPs, in the interest of further market integration, financial stability and a level-playing field. CCPs have grown in importance since the adoption of EMIR and will expand further in the coming years In the five years since the adoption of EMIR, the volume of CCP activity – in the EU and globally - has grown rapidly both in scale and in scope. This is a sign that the legislation works and is fulfilling its purpose. As of end of June 2016, around 62% of the global value of all OTC derivatives contracts and asset classes (interest rates, credit default, foreign exchange, etc.) were centrally cleared by CCPs 3 , which is equivalent to $337 trillion. About 97% ($328 trillion) of all centrally-cleared derivatives contracts are interest-rate derivatives. At the end of 2015, about 60% of all OTC interest-rate derivatives were centrally cleared, while the corresponding figure by the end of 2009 was 36% 4 . Central clearing has similarly gained in importance in the credit derivatives (so-called CDS) market, with the proportion of outstanding CDSs cleared through CCPs increasing steadily since these data were first reported, i.e. 37% at the end of June 2016 while the corresponding figure was 10% at the end of June 2010 5 . The rapidly expanding role of CCPs in the global financial system not only reflects the introduction of central clearing obligations across different asset classes 6 , but also increased voluntary use of central clearing amid growing awareness of the benefits of central clearing among market participants (clearing obligations have applied only since June 2016) 7 . EMIR requires certain interest-rate derivatives and CDSs to be centrally cleared in line with similar requirements in other G20 countries 8 . Bank capital rules have been changed to incentivise central clearing and make bilateral clearing a costlier option in relative terms 9 , while bilateral transactions are subject to additional collateral requirements since March 2017 10 . The expansion in CCP activity is set to continue in the coming years. Mandatory clearing obligations are likely for additional asset classes 11 and the incentives to mitigate risks and costs are likely to lead to even more voluntary clearing. The May 2017 proposal to amend EMIR in a targeted manner, to improve its effectiveness and proportionality, will reinforce this trend, by creating further incentives for CCPs to offer central clearing of derivatives to counterparties. 12 Finally, deeper and more integrated capital markets as a result of the Capital Markets Union (CMU) will further increase the need for cross-border clearing in the EU, thus increasing the importance and the interconnectedness of CCPs within the financial system. Expanding role of CCPs raises concerns about the need to upgrade supervisory arrangements under EMIR , also in light of the establishment of the Capital Markets Union The growing importance of CCPs in the financial system and the associated concentration of credit risk in these infrastructures have drawn the attention of governments, regulators, supervisors, central banks and market participants. While the scale and scope of centrally-cleared transactions has expanded, the number of CCPs has remained relatively limited. There are currently 17 CCPs established in the EU, all of which are authorised under EMIR to offer their services within the Union - although not all CCPs are authorised to clear all asset classes (e.g. only 2 CCPs clear credit derivatives, only 2 CCPs clear inflation derivatives 13 ). 14 An additional 28 third-country CCPs have been recognised under EMIR's equivalence provisions, allowing them to offer their services in the EU. 15 Accordingly, clearing markets are integrated across the EU and are highly concentrated in certain asset classes . They are also highly interconnected. 16 While increased clearing via properly regulated and supervised CCPs reinforces systemic stability overall, the concentration of risk makes the failure of a CCP a low-probability but potentially extremely high-impact event. Given the centrality of CCPs to the financial system, the increasing systemic importance of CCPs gives rise to concerns. CCPs have themselves become a source of macro-prudential risk, as their failure could cause significant disruption to the financial system and would have systemic effects. For instance, large scale, uncontrolled termination and close-out of contracts cleared by CCPs could lead to liquidity and collateral strains across the market, causing instability in the underlying asset market and the wider financial system. Like some other financial intermediaries, CCPs are also potentially susceptible to “runs” due to clearing members losing confidence in the solvency of a CCP. This could create a liquidity shock for the CCP as it attempts to meet its obligations to return the principal collateral (i.e. initial margin). The impact of a CCP failure due to increased concentration of risk would be amplified by a growing interconnectedness between CCPs both directly and indirectly via their members (usually large global banks) and clients. In response, and in line with the G20 consensus 17 , the Commission adopted a proposal for a Regulation on CCP Recovery and Resolution in November 2016 18 . The objective of the proposal is to ensure that authorities are appropriately prepared to address a failing CCP, safeguarding financial stability and limiting taxpayer costs. The CCP Recovery and Resolution proposal refocused attention on the supervisory arrangements for EU and third-country CCPs included in EMIR and the extent to which these arrangements can be made more effective five years after adoption of EMIR. This proposal is currently under negotiations in the European Parliament and the Council. That ongoing work-stream needs to be coordinated and consistent with the current proposal. Supervisory arrangements for EU CCPs Under EMIR, EU CCPs are supervised by colleges of national supervisors, the European Securities and Markets Authority (ESMA), relevant members of the European System of Central Banks (ESCB), and other relevant authorities (e.g. supervisors of the largest clearing members, supervisors of certain trading venues and central securities depositories). These colleges can include as many as 20 member authorities and they rely on coordination by the home-country authority. These arrangements raise certain concerns in light of the current state of integration in the market that needs to be reflected in the supervisory arrangements. This is also important in order to advance the Capital Markets Union . First, the growing concentration of clearing services in a limited number of CCPs, and the consequential increase in cross-border activity, implies that CCPs in a small number of individual Member States are increasingly relevant for the EU financial system as a whole. Against this trend, the current supervisory arrangements relying mainly on the home-country authority (e.g. the home-country authority is ultimately responsible for important decisions such as the extension of the authorisation or the approval of outsourcing and interoperability arrangements) need to be reconsidered. Second, diverging supervisory practices for CCPs (e.g. different conditions for authorisation or model validation processes) across the EU can create risks of regulatory and supervisory arbitrage for CCPs and indirectly for their clearing members or clients. The Commission has drawn attention to these emerging risks and the need for more supervisory convergence in its Communication on CMU of September 2016 19 and in the public consultation on the operations of the European Supervisory Authorities (ESAs) 20 , both of which highlighted the challenges posed by heterogeneous supervisory practices. Third, the role of central banks - as issuers of currency - is not adequately reflected in CCP colleges. While the mandates of central banks and supervisors may overlap (in particular in areas such as interoperability, liquidity-risk controls etc.), there is a potential for misalignment when supervisory actions impact on key responsibilities of central banks in areas such as price stability, monetary policy and the payment systems. In crisis situations, their misalignments can amplify the risks to financial stability if the assignment of responsibilities between authorities remains unclear. Supervisory arrangements for third-country CCPs Today, a significant amount of financial instruments denominated in the currencies of the Member States are cleared by recognised third-country CCPs. For example, the notional amount outstanding at Chicago Mercantile Exchange (CME) in the US is EUR 1.8 trillion for euro-denominated interest-rate derivatives, and SEK 348 billion for SEK denominated interest-rate derivatives. This also raises a series of concerns. First, the implementation of EMIR’s system of equivalence and recognition has shown certain shortcomings in particular regarding ongoing supervision. In particular, after a third-country CCP has been recognised, ESMA has encountered difficulties in accessing information from the CCP, in conducting on-site inspections of the CCP and in sharing information with the relevant EU regulators, supervisors and central banks. As a result, there is a risk that third-country CCP practices and/or adjustments to risk management models go undetected and/or unaddressed, which may have important financial-stability implications for the EU entities. Second, the potential for misalignments between supervisory and central-bank objectives within colleges acquires an additional dimension in the context of third-country CCPs where non-EU authorities are involved. Third, there is a risk that changes to the CCP rules and/or regulatory framework in a third-country could negatively affect regulatory or supervisory outcomes, leading to an un-level playing field between EU and third-country CCPs and creating scope for regulatory or supervisory arbitrage. There is currently no mechanism to ensure that the EU is informed automatically of such changes and can take appropriate measures. Such concerns are likely to become more significant in the coming years because the global nature of capital markets means that the role played by third-country CCPs is set to expand. In addition to the 28 third-country CCPs already recognised by ESMA, a further 12 CCPs from 10 jurisdictions have applied for recognition 21 and are awaiting a decision of the Commission for the equivalence of their regulatory and supervisory regimes. Moreover, a substantial volume of euro-denominated derivatives transactions (and other transactions subject to the EU clearing obligation) is currently cleared in CCPs located in the United Kingdom. When the United Kingdom exits the EU, there will therefore be a distinct shift in the proportion of such transactions being cleared in CCPs outside the EU's jurisdiction, exacerbating the concerns outlined above. This implies significant challenges for safeguarding financial stability in the EU that need to be addressed. In light of these considerations, the Commission adopted a Communication on 4 May 2017 on responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union 22 . The Communication indicated that "further changes [to EMIR] will be necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the Capital Markets Union (CMU)". Need to improve current supervisory arrangements As the EU clearing landscape continues to evolve, the arrangements for crisis prevention and management of CCPs must be as effective as possible. EMIR and the Commission proposal for a Regulation on CCP Recovery and Resolution are important steps in this regard. However, five years after the adoption of EMIR, the growing size, complexity and cross-border dimension of clearing in the EU and globally have highlighted shortcomings in the supervisory arrangements for EU and third-country CCPs. The present proposal therefore sets out specific amendments to EMIR and the ESMA Regulation 23 , in particular to establish clear and coherent supervisory arrangements both for EU and third-country CCPs. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options in order to enhance supervision of CCPs at EU level, involve further the central banks of issue in the supervision of CCPs, and strengthen the ability of the EU to monitor, identify and mitigate third-country CCP risks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforce the overall stability of the EU financial system and to lower further the already low probability (but extremely high-impact) risk of a CCP failure, while keeping costs at a minimum for market participants. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 62 General investigations):
1. In order to carry out its duties under this Regulation, ESMA may conduct necessary investigations of persons referred to in Article 61(1). To that end, the officials and other persons authorised by ESMA shall be empowered to: (a) examine any records, data, procedures and any other material relevant to the execution of its tasks irrespective of the medium on which they are stored; (b) take or obtain certified copies of or extracts from such records, data, procedures and other material; (c) summon and ask any person referred to in Article 61(1) or their representatives or staff for oral or written explanations on facts or documents relating to the subject matter and purpose of the inspection and to record the answers; (d) interview any other natural or legal person who consents to be interviewed for the purpose of collecting information relating to the subject matter of an investigation; (e) request records of telephone and data traffic. 2. The officials and other persons authorised by ESMA for the purposes of the investigations referred to in paragraph 1 shall exercise their powers upon production of a written authorisation specifying the subject matter and purpose of the investigation. That authorisation shall also indicate the periodic penalty payments provided for in Article 66 where the production of the required records, data, procedures or any other material, or the answers to questions asked to persons referred to in Article 61(1) are not provided or are incomplete, and the fines provided for in Article 65 in conjunction with point (b) of Section IV of Annex I, where the answers to questions asked to persons referred to in Article 61(1) are incorrect or misleading. 3. The persons referred to in Article 61(1) are required to submit to investigations launched on the basis of a decision of ESMA. The decision shall specify the subject matter and purpose of the investigation, the periodic penalty payments provided for in Article 66, the legal remedies available under Regulation (EU) No 1095/2010 and the right to have the decision reviewed by the Court of Justice. 4. In good time before the investigation, ESMA shall inform the competent authority of the Member State where the investigation is to be carried out of the investigation and of the identity of the authorised persons. Officials of the competent authority concerned shall, upon the request of ESMA, assist those authorised persons in carrying out their duties. Officials of the competent authority concerned may also attend the investigations upon request. 5. If a request for records of telephone or data traffic referred to in point (e) of paragraph 1 requires a national competent authority to be authorised by a judicial authority in accordance with national rules, ESMA shall also apply for such authorisation. ESMA may also apply for such authorisation as a precautionary measure. 6. Where authorisation as referred to in paragraph 5 is applied for, the national judicial authority shall control that the decision of ESMA is authentic and that the coercive measures envisaged are neither arbitrary nor excessive having regard to the subject matter of the investigations. In its control of the proportionality of the coercive measures, the national judicial authority may ask ESMA for detailed explanations, in particular relating to the grounds ESMA has for suspecting that an infringement of this Regulation has taken place and the seriousness of the suspected infringement and the nature of the involvement of the person subject to the coercive measures. However, the national judicial authority shall not review the necessity for the investigation or demand that it be provided with the information on ESMA’s file. The lawfulness of ESMA’s decision shall be subject to review only by the Court of Justice following the procedure set out in Regulation (EU) No 1095/2010.
Article 63 On-site inspections
1. In order to carry out its duties under this Regulation, ESMA may conduct all necessary on-site inspections at any business premises or land of the legal persons referred to in Article 61(1). Where the proper conduct and efficiency of the inspection so require, ESMA may carry out the on-site inspection without prior announcement. 2. The officials and other persons authorised by ESMA to conduct an on-site inspection may enter any business premises or land of the legal persons subject to an investigation decision adopted by ESMA and shall have all the powers stipulated in Article 62(1). They shall also have the power to seal any business premises and books or records for the period of, and to the extent necessary for, the inspection. 3. The officials and other persons authorised by ESMA to conduct an on-site inspection shall exercise their powers upon production of a written authorisation specifying the subject matter and purpose of the inspection and the periodic penalty payments provided for in Article 66 where the persons concerned do not submit to the inspection. In good time before the inspection, ESMA shall give notice of the inspection to the competent authority of the Member State where the inspection is to be conducted. 4. The persons referred to in Article 61(1) shall submit to on-site inspections ordered by decision of ESMA. The decision shall specify the subject matter and purpose of the inspection, appoint the date on which it is to begin and indicate the periodic penalty payments provided for in Article 66, the legal remedies available under Regulation (EU) No 1095/2010 as well as the right to have the decision reviewed by the Court of Justice. ESMA shall take such decisions after consulting the competent authority of the Member State where the inspection is to be conducted. 5. Officials of, as well as those authorised or appointed by, the competent authority of the Member State where the inspection is to be conducted shall, at the request of ESMA, actively assist the officials and other persons authorised by ESMA. To that end, they shall enjoy the powers set out in paragraph 2. Officials of the competent authority of the Member State concerned may also attend the on-site inspections on request. 6. ESMA may also require competent authorities to carry out specific investigatory tasks and on-site inspections as provided for in this Article and in Article 62(1) on its behalf. To that end, competent authorities shall enjoy the same powers as ESMA as set out in this Article and in Article 62(1). 7. Where the officials and other accompanying persons authorised by ESMA find that a person opposes an inspection ordered pursuant to this Article, the competent authority of the Member State concerned shall afford them the necessary assistance, requesting, where appropriate, the assistance of the police or of an equivalent enforcement authority, so as to enable them to conduct their on-site inspection. 8. If the on-site inspection provided for in paragraph 1 or the assistance provided for in paragraph 7 requires authorisation by a judicial authority according to national law, such authorisation shall be applied for. Such authorisation may also be applied for as a precautionary measure. 9. Where authorisation as referred to in paragraph 8 is applied for, the national judicial authority shall verify that ESMA’s decision is authentic and that the coercive measures envisaged are neither arbitrary nor excessive having regard to the subject matter of the inspection. In its control of the proportionality of the coercive measures, the national judicial authority may ask ESMA for detailed explanations. Such a request for detailed explanations may in particular relate to the grounds ESMA has for suspecting that an infringement of this Regulation has taken place, as well as to the seriousness of the suspected infringement and the nature of the involvement of the person who is subjected to the coercive measures. However, the national judicial authority may not review the necessity for the inspection or demand to be provided with the information on ESMA’s file. The lawfulness of ESMA’s decision shall be subject to review only by the Court of Justice following the procedure set out in Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Derivatives contracts are a key tool for Europe's banks and businesses to manage their risks, whether they are related to changes in interest rates, currency fluctuations or the default of a business counterpart. However, opaque derivatives markets also acted as an unwelcome contagion channel. Derivatives markets must therefore be regulated and supervised effectively to safeguard financial stability. Given the global nature of derivatives markets and in accordance with the 2009 G20 Pittsburgh agreement 1 to reduce the systemic risk linked to extensive use of derivatives, the EU adopted the European Market Infrastructure Regulation (EMIR) in 2012. 2 As a key pillar of EMIR standardised over-the-counter (OTC) derivatives contracts must be cleared through a Central Counterparty (CCP). A CCP is a market infrastructure that reduces systemic risk and enhances financial stability by standing between the two counterparties to a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk) and thereby reducing the risk for both. EMIR also introduced strict prudential, organisational and business conduct requirements for CCPs and established arrangements for their prudential supervision to minimise any risk to users of a CCP and underpin systemic stability. Since 2012 when EMIR was adopted, central clearing has been significantly expanding and CCPs have become increasingly concentrated and integrated across the EU and with third countries. The present proposal ensures that supervisory arrangements keep pace with these developments. It is proposed that the EU equips its Capital Markets Union with a more effective and consistent supervisory system for CCPs, in the interest of further market integration, financial stability and a level-playing field. CCPs have grown in importance since the adoption of EMIR and will expand further in the coming years In the five years since the adoption of EMIR, the volume of CCP activity – in the EU and globally - has grown rapidly both in scale and in scope. This is a sign that the legislation works and is fulfilling its purpose. As of end of June 2016, around 62% of the global value of all OTC derivatives contracts and asset classes (interest rates, credit default, foreign exchange, etc.) were centrally cleared by CCPs 3 , which is equivalent to $337 trillion. About 97% ($328 trillion) of all centrally-cleared derivatives contracts are interest-rate derivatives. At the end of 2015, about 60% of all OTC interest-rate derivatives were centrally cleared, while the corresponding figure by the end of 2009 was 36% 4 . Central clearing has similarly gained in importance in the credit derivatives (so-called CDS) market, with the proportion of outstanding CDSs cleared through CCPs increasing steadily since these data were first reported, i.e. 37% at the end of June 2016 while the corresponding figure was 10% at the end of June 2010 5 . The rapidly expanding role of CCPs in the global financial system not only reflects the introduction of central clearing obligations across different asset classes 6 , but also increased voluntary use of central clearing amid growing awareness of the benefits of central clearing among market participants (clearing obligations have applied only since June 2016) 7 . EMIR requires certain interest-rate derivatives and CDSs to be centrally cleared in line with similar requirements in other G20 countries 8 . Bank capital rules have been changed to incentivise central clearing and make bilateral clearing a costlier option in relative terms 9 , while bilateral transactions are subject to additional collateral requirements since March 2017 10 . The expansion in CCP activity is set to continue in the coming years. Mandatory clearing obligations are likely for additional asset classes 11 and the incentives to mitigate risks and costs are likely to lead to even more voluntary clearing. The May 2017 proposal to amend EMIR in a targeted manner, to improve its effectiveness and proportionality, will reinforce this trend, by creating further incentives for CCPs to offer central clearing of derivatives to counterparties. 12 Finally, deeper and more integrated capital markets as a result of the Capital Markets Union (CMU) will further increase the need for cross-border clearing in the EU, thus increasing the importance and the interconnectedness of CCPs within the financial system. Expanding role of CCPs raises concerns about the need to upgrade supervisory arrangements under EMIR , also in light of the establishment of the Capital Markets Union The growing importance of CCPs in the financial system and the associated concentration of credit risk in these infrastructures have drawn the attention of governments, regulators, supervisors, central banks and market participants. While the scale and scope of centrally-cleared transactions has expanded, the number of CCPs has remained relatively limited. There are currently 17 CCPs established in the EU, all of which are authorised under EMIR to offer their services within the Union - although not all CCPs are authorised to clear all asset classes (e.g. only 2 CCPs clear credit derivatives, only 2 CCPs clear inflation derivatives 13 ). 14 An additional 28 third-country CCPs have been recognised under EMIR's equivalence provisions, allowing them to offer their services in the EU. 15 Accordingly, clearing markets are integrated across the EU and are highly concentrated in certain asset classes . They are also highly interconnected. 16 While increased clearing via properly regulated and supervised CCPs reinforces systemic stability overall, the concentration of risk makes the failure of a CCP a low-probability but potentially extremely high-impact event. Given the centrality of CCPs to the financial system, the increasing systemic importance of CCPs gives rise to concerns. CCPs have themselves become a source of macro-prudential risk, as their failure could cause significant disruption to the financial system and would have systemic effects. For instance, large scale, uncontrolled termination and close-out of contracts cleared by CCPs could lead to liquidity and collateral strains across the market, causing instability in the underlying asset market and the wider financial system. Like some other financial intermediaries, CCPs are also potentially susceptible to “runs” due to clearing members losing confidence in the solvency of a CCP. This could create a liquidity shock for the CCP as it attempts to meet its obligations to return the principal collateral (i.e. initial margin). The impact of a CCP failure due to increased concentration of risk would be amplified by a growing interconnectedness between CCPs both directly and indirectly via their members (usually large global banks) and clients. In response, and in line with the G20 consensus 17 , the Commission adopted a proposal for a Regulation on CCP Recovery and Resolution in November 2016 18 . The objective of the proposal is to ensure that authorities are appropriately prepared to address a failing CCP, safeguarding financial stability and limiting taxpayer costs. The CCP Recovery and Resolution proposal refocused attention on the supervisory arrangements for EU and third-country CCPs included in EMIR and the extent to which these arrangements can be made more effective five years after adoption of EMIR. This proposal is currently under negotiations in the European Parliament and the Council. That ongoing work-stream needs to be coordinated and consistent with the current proposal. Supervisory arrangements for EU CCPs Under EMIR, EU CCPs are supervised by colleges of national supervisors, the European Securities and Markets Authority (ESMA), relevant members of the European System of Central Banks (ESCB), and other relevant authorities (e.g. supervisors of the largest clearing members, supervisors of certain trading venues and central securities depositories). These colleges can include as many as 20 member authorities and they rely on coordination by the home-country authority. These arrangements raise certain concerns in light of the current state of integration in the market that needs to be reflected in the supervisory arrangements. This is also important in order to advance the Capital Markets Union . First, the growing concentration of clearing services in a limited number of CCPs, and the consequential increase in cross-border activity, implies that CCPs in a small number of individual Member States are increasingly relevant for the EU financial system as a whole. Against this trend, the current supervisory arrangements relying mainly on the home-country authority (e.g. the home-country authority is ultimately responsible for important decisions such as the extension of the authorisation or the approval of outsourcing and interoperability arrangements) need to be reconsidered. Second, diverging supervisory practices for CCPs (e.g. different conditions for authorisation or model validation processes) across the EU can create risks of regulatory and supervisory arbitrage for CCPs and indirectly for their clearing members or clients. The Commission has drawn attention to these emerging risks and the need for more supervisory convergence in its Communication on CMU of September 2016 19 and in the public consultation on the operations of the European Supervisory Authorities (ESAs) 20 , both of which highlighted the challenges posed by heterogeneous supervisory practices. Third, the role of central banks - as issuers of currency - is not adequately reflected in CCP colleges. While the mandates of central banks and supervisors may overlap (in particular in areas such as interoperability, liquidity-risk controls etc.), there is a potential for misalignment when supervisory actions impact on key responsibilities of central banks in areas such as price stability, monetary policy and the payment systems. In crisis situations, their misalignments can amplify the risks to financial stability if the assignment of responsibilities between authorities remains unclear. Supervisory arrangements for third-country CCPs Today, a significant amount of financial instruments denominated in the currencies of the Member States are cleared by recognised third-country CCPs. For example, the notional amount outstanding at Chicago Mercantile Exchange (CME) in the US is EUR 1.8 trillion for euro-denominated interest-rate derivatives, and SEK 348 billion for SEK denominated interest-rate derivatives. This also raises a series of concerns. First, the implementation of EMIR’s system of equivalence and recognition has shown certain shortcomings in particular regarding ongoing supervision. In particular, after a third-country CCP has been recognised, ESMA has encountered difficulties in accessing information from the CCP, in conducting on-site inspections of the CCP and in sharing information with the relevant EU regulators, supervisors and central banks. As a result, there is a risk that third-country CCP practices and/or adjustments to risk management models go undetected and/or unaddressed, which may have important financial-stability implications for the EU entities. Second, the potential for misalignments between supervisory and central-bank objectives within colleges acquires an additional dimension in the context of third-country CCPs where non-EU authorities are involved. Third, there is a risk that changes to the CCP rules and/or regulatory framework in a third-country could negatively affect regulatory or supervisory outcomes, leading to an un-level playing field between EU and third-country CCPs and creating scope for regulatory or supervisory arbitrage. There is currently no mechanism to ensure that the EU is informed automatically of such changes and can take appropriate measures. Such concerns are likely to become more significant in the coming years because the global nature of capital markets means that the role played by third-country CCPs is set to expand. In addition to the 28 third-country CCPs already recognised by ESMA, a further 12 CCPs from 10 jurisdictions have applied for recognition 21 and are awaiting a decision of the Commission for the equivalence of their regulatory and supervisory regimes. Moreover, a substantial volume of euro-denominated derivatives transactions (and other transactions subject to the EU clearing obligation) is currently cleared in CCPs located in the United Kingdom. When the United Kingdom exits the EU, there will therefore be a distinct shift in the proportion of such transactions being cleared in CCPs outside the EU's jurisdiction, exacerbating the concerns outlined above. This implies significant challenges for safeguarding financial stability in the EU that need to be addressed. In light of these considerations, the Commission adopted a Communication on 4 May 2017 on responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union 22 . The Communication indicated that "further changes [to EMIR] will be necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the Capital Markets Union (CMU)". Need to improve current supervisory arrangements As the EU clearing landscape continues to evolve, the arrangements for crisis prevention and management of CCPs must be as effective as possible. EMIR and the Commission proposal for a Regulation on CCP Recovery and Resolution are important steps in this regard. However, five years after the adoption of EMIR, the growing size, complexity and cross-border dimension of clearing in the EU and globally have highlighted shortcomings in the supervisory arrangements for EU and third-country CCPs. The present proposal therefore sets out specific amendments to EMIR and the ESMA Regulation 23 , in particular to establish clear and coherent supervisory arrangements both for EU and third-country CCPs. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options in order to enhance supervision of CCPs at EU level, involve further the central banks of issue in the supervision of CCPs, and strengthen the ability of the EU to monitor, identify and mitigate third-country CCP risks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforce the overall stability of the EU financial system and to lower further the already low probability (but extremely high-impact) risk of a CCP failure, while keeping costs at a minimum for market participants. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 63 On-site inspections):
1. In order to carry out its duties under this Regulation, ESMA may conduct all necessary on-site inspections on any business premises, land or property of the legal persons referred to in Article 61(1). Where the proper conduct and efficiency of the inspection so require, ESMA may conduct the on-site inspection without prior announcement. 2. The officials and other persons authorised by ESMA to conduct an on-site inspection may enter any business premises, land or property of the legal persons who are subject to an investigation decision adopted by ESMA and shall have all the powers referred to in Article 62(1). They shall also have the power to seal any business premises and books or records for the period of, and to the extent necessary for, the inspection. 3. The officials and other persons authorised by ESMA to conduct an on-site inspection shall exercise their powers upon production of a written authorisation specifying the subject matter and purpose of the inspection and the periodic penalty payments provided for in Article 66 where the persons concerned do not submit to the inspection. In good time before the inspection, ESMA shall give notice of the inspection to the competent authority of the Member State where the inspection is to be conducted. 4. The persons referred to in Article 61(1) shall submit to on-site inspections ordered by decision of ESMA. The decision shall specify the subject matter and purpose of the inspection, appoint the date on which it is to begin and indicate the periodic penalty payments provided for in Article 66, the legal remedies available under Regulation (EU) No 1095/2010 as well as the right to have the decision reviewed by the Court of Justice. ESMA shall take such decisions after consulting the competent authority of the Member State where the inspection is to be conducted. 5. Officials of, as well as those authorised or appointed by, the competent authority of the Member State where the inspection is to be conducted shall, at the request of ESMA, actively assist the officials and other persons authorised by ESMA. To that end, they shall enjoy the powers set out in paragraph 2. Officials of the competent authority of the Member State concerned may also attend the on-site inspections on request. 6. ESMA may also require competent authorities to carry out specific investigatory tasks and on-site inspections as provided for in this Article and in Article 62(1) on its behalf. To that end, competent authorities shall enjoy the same powers as ESMA as set out in this Article and in Article 62(1). 7. Where the officials and other accompanying persons authorised by ESMA find that a person opposes an inspection ordered pursuant to this Article, the competent authority of the Member State concerned shall afford them the necessary assistance, requesting, where appropriate, the assistance of the police or of an equivalent enforcement authority, so as to enable them to conduct their on-site inspection. 8. If the on-site inspection provided for in paragraph 1 or the assistance provided for in paragraph 7 requires a national competent authority to be authorised by a judicial authority in accordance with national rules, ESMA shall also apply for such authorisation. ESMA may also apply for such authorisation as a precautionary measure. 9. Where authorisation as referred to in paragraph 8 is applied for, the national judicial authority shall verify that ESMA’s decision is authentic and that the coercive measures envisaged are neither arbitrary nor excessive having regard to the subject matter of the inspection. In its control of the proportionality of the coercive measures, the national judicial authority may ask ESMA for detailed explanations. Such a request for detailed explanations may in particular relate to the grounds ESMA has for suspecting that an infringement of this Regulation has taken place, as well as to the seriousness of the suspected infringement and the nature of the involvement of the person who is subjected to the coercive measures. However, the national judicial authority may not review the necessity for the inspection or demand to be provided with the information on ESMA’s file. The lawfulness of ESMA’s decision shall be subject to review only by the Court of Justice following the procedure set out in Regulation (EU) No 1095/2010.
Article 64 Procedural rules for taking supervisory measures and imposing fines
1. Where, in carrying out its duties under this Regulation, ESMA finds that there are serious indications of the possible existence of facts liable to constitute one or more of the infringements listed in Annex I, ESMA shall appoint an independent investigation officer within ESMA to investigate the matter. The appointed officer shall not be involved or have been directly or indirectly involved in the supervision or the registration process of the trade repository concerned and shall perform his functions independently from ESMA. 2. The investigation officer shall investigate the alleged infringements, taking into account any comments submitted by the persons who are subject to the investigations, and shall submit a complete file with his findings to ESMA. In order to carry out his tasks, the investigation officer may exercise the power to request information in accordance with Article 61 and to conduct investigations and on-site inspections in accordance with Articles 62 and 63. When using those powers, the investigation officer shall comply with Article 60. Where carrying out his tasks, the investigation officer shall have access to all documents and information gathered by ESMA in its supervisory activities. 3. Upon completion of his investigation and before submitting the file with his findings to ESMA, the investigation officer shall give the persons subject to the investigations the opportunity to be heard on the matters being investigated. The investigation officer shall base his findings only on facts on which the persons concerned have had the opportunity to comment. The rights of the defence of the persons concerned shall be fully respected during investigations under this Article. 4. When submitting the file with his findings to ESMA, the investigation officer shall notify that fact to the persons who are subject to the investigations. The persons subject to the investigations shall be entitled to have access to the file, subject to the legitimate interest of other persons in the protection of their business secrets. The right of access to the file shall not extend to confidential information affecting third parties. 5. On the basis of the file containing the investigation officer’s findings and, when requested by the persons concerned, after having heard the persons subject to the investigations in accordance with Article 67, ESMA shall decide if one or more of the infringements listed in Annex I has been committed by the persons who have been subject to the investigations and, in such a case, shall take a supervisory measure in accordance with Article 73 and impose a fine in accordance with Article 65. 6. The investigation officer shall not participate in ESMA’s deliberations or in any other way intervene in ESMA’s decision-making process. 7. The Commission shall adopt further rules of procedure for the exercise of the power to impose fines or periodic penalty payments, including provisions on the rights of the defence, temporal provisions, and the collection of fines or periodic penalty payments, and shall adopt detailed rules on the limitation periods for the imposition and enforcement of penalties. The rules referred to in the first subparagraph shall be adopted by means of delegated acts in accordance with Article 82. 8. ESMA shall refer matters for criminal prosecution to the relevant national authorities where, in carrying out its duties under this Regulation, it finds that there are serious indications of the possible existence of facts liable to constitute criminal offences. In addition, ESMA shall refrain from imposing fines or periodic penalty payments where a prior acquittal or conviction arising from identical fact or facts which are substantially the same has already acquired the force of res judicata as the result of criminal proceedings under national law.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Derivatives contracts are a key tool for Europe's banks and businesses to manage their risks, whether they are related to changes in interest rates, currency fluctuations or the default of a business counterpart. However, opaque derivatives markets also acted as an unwelcome contagion channel. Derivatives markets must therefore be regulated and supervised effectively to safeguard financial stability. Given the global nature of derivatives markets and in accordance with the 2009 G20 Pittsburgh agreement 1 to reduce the systemic risk linked to extensive use of derivatives, the EU adopted the European Market Infrastructure Regulation (EMIR) in 2012. 2 As a key pillar of EMIR standardised over-the-counter (OTC) derivatives contracts must be cleared through a Central Counterparty (CCP). A CCP is a market infrastructure that reduces systemic risk and enhances financial stability by standing between the two counterparties to a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk) and thereby reducing the risk for both. EMIR also introduced strict prudential, organisational and business conduct requirements for CCPs and established arrangements for their prudential supervision to minimise any risk to users of a CCP and underpin systemic stability. Since 2012 when EMIR was adopted, central clearing has been significantly expanding and CCPs have become increasingly concentrated and integrated across the EU and with third countries. The present proposal ensures that supervisory arrangements keep pace with these developments. It is proposed that the EU equips its Capital Markets Union with a more effective and consistent supervisory system for CCPs, in the interest of further market integration, financial stability and a level-playing field. CCPs have grown in importance since the adoption of EMIR and will expand further in the coming years In the five years since the adoption of EMIR, the volume of CCP activity – in the EU and globally - has grown rapidly both in scale and in scope. This is a sign that the legislation works and is fulfilling its purpose. As of end of June 2016, around 62% of the global value of all OTC derivatives contracts and asset classes (interest rates, credit default, foreign exchange, etc.) were centrally cleared by CCPs 3 , which is equivalent to $337 trillion. About 97% ($328 trillion) of all centrally-cleared derivatives contracts are interest-rate derivatives. At the end of 2015, about 60% of all OTC interest-rate derivatives were centrally cleared, while the corresponding figure by the end of 2009 was 36% 4 . Central clearing has similarly gained in importance in the credit derivatives (so-called CDS) market, with the proportion of outstanding CDSs cleared through CCPs increasing steadily since these data were first reported, i.e. 37% at the end of June 2016 while the corresponding figure was 10% at the end of June 2010 5 . The rapidly expanding role of CCPs in the global financial system not only reflects the introduction of central clearing obligations across different asset classes 6 , but also increased voluntary use of central clearing amid growing awareness of the benefits of central clearing among market participants (clearing obligations have applied only since June 2016) 7 . EMIR requires certain interest-rate derivatives and CDSs to be centrally cleared in line with similar requirements in other G20 countries 8 . Bank capital rules have been changed to incentivise central clearing and make bilateral clearing a costlier option in relative terms 9 , while bilateral transactions are subject to additional collateral requirements since March 2017 10 . The expansion in CCP activity is set to continue in the coming years. Mandatory clearing obligations are likely for additional asset classes 11 and the incentives to mitigate risks and costs are likely to lead to even more voluntary clearing. The May 2017 proposal to amend EMIR in a targeted manner, to improve its effectiveness and proportionality, will reinforce this trend, by creating further incentives for CCPs to offer central clearing of derivatives to counterparties. 12 Finally, deeper and more integrated capital markets as a result of the Capital Markets Union (CMU) will further increase the need for cross-border clearing in the EU, thus increasing the importance and the interconnectedness of CCPs within the financial system. Expanding role of CCPs raises concerns about the need to upgrade supervisory arrangements under EMIR , also in light of the establishment of the Capital Markets Union The growing importance of CCPs in the financial system and the associated concentration of credit risk in these infrastructures have drawn the attention of governments, regulators, supervisors, central banks and market participants. While the scale and scope of centrally-cleared transactions has expanded, the number of CCPs has remained relatively limited. There are currently 17 CCPs established in the EU, all of which are authorised under EMIR to offer their services within the Union - although not all CCPs are authorised to clear all asset classes (e.g. only 2 CCPs clear credit derivatives, only 2 CCPs clear inflation derivatives 13 ). 14 An additional 28 third-country CCPs have been recognised under EMIR's equivalence provisions, allowing them to offer their services in the EU. 15 Accordingly, clearing markets are integrated across the EU and are highly concentrated in certain asset classes . They are also highly interconnected. 16 While increased clearing via properly regulated and supervised CCPs reinforces systemic stability overall, the concentration of risk makes the failure of a CCP a low-probability but potentially extremely high-impact event. Given the centrality of CCPs to the financial system, the increasing systemic importance of CCPs gives rise to concerns. CCPs have themselves become a source of macro-prudential risk, as their failure could cause significant disruption to the financial system and would have systemic effects. For instance, large scale, uncontrolled termination and close-out of contracts cleared by CCPs could lead to liquidity and collateral strains across the market, causing instability in the underlying asset market and the wider financial system. Like some other financial intermediaries, CCPs are also potentially susceptible to “runs” due to clearing members losing confidence in the solvency of a CCP. This could create a liquidity shock for the CCP as it attempts to meet its obligations to return the principal collateral (i.e. initial margin). The impact of a CCP failure due to increased concentration of risk would be amplified by a growing interconnectedness between CCPs both directly and indirectly via their members (usually large global banks) and clients. In response, and in line with the G20 consensus 17 , the Commission adopted a proposal for a Regulation on CCP Recovery and Resolution in November 2016 18 . The objective of the proposal is to ensure that authorities are appropriately prepared to address a failing CCP, safeguarding financial stability and limiting taxpayer costs. The CCP Recovery and Resolution proposal refocused attention on the supervisory arrangements for EU and third-country CCPs included in EMIR and the extent to which these arrangements can be made more effective five years after adoption of EMIR. This proposal is currently under negotiations in the European Parliament and the Council. That ongoing work-stream needs to be coordinated and consistent with the current proposal. Supervisory arrangements for EU CCPs Under EMIR, EU CCPs are supervised by colleges of national supervisors, the European Securities and Markets Authority (ESMA), relevant members of the European System of Central Banks (ESCB), and other relevant authorities (e.g. supervisors of the largest clearing members, supervisors of certain trading venues and central securities depositories). These colleges can include as many as 20 member authorities and they rely on coordination by the home-country authority. These arrangements raise certain concerns in light of the current state of integration in the market that needs to be reflected in the supervisory arrangements. This is also important in order to advance the Capital Markets Union . First, the growing concentration of clearing services in a limited number of CCPs, and the consequential increase in cross-border activity, implies that CCPs in a small number of individual Member States are increasingly relevant for the EU financial system as a whole. Against this trend, the current supervisory arrangements relying mainly on the home-country authority (e.g. the home-country authority is ultimately responsible for important decisions such as the extension of the authorisation or the approval of outsourcing and interoperability arrangements) need to be reconsidered. Second, diverging supervisory practices for CCPs (e.g. different conditions for authorisation or model validation processes) across the EU can create risks of regulatory and supervisory arbitrage for CCPs and indirectly for their clearing members or clients. The Commission has drawn attention to these emerging risks and the need for more supervisory convergence in its Communication on CMU of September 2016 19 and in the public consultation on the operations of the European Supervisory Authorities (ESAs) 20 , both of which highlighted the challenges posed by heterogeneous supervisory practices. Third, the role of central banks - as issuers of currency - is not adequately reflected in CCP colleges. While the mandates of central banks and supervisors may overlap (in particular in areas such as interoperability, liquidity-risk controls etc.), there is a potential for misalignment when supervisory actions impact on key responsibilities of central banks in areas such as price stability, monetary policy and the payment systems. In crisis situations, their misalignments can amplify the risks to financial stability if the assignment of responsibilities between authorities remains unclear. Supervisory arrangements for third-country CCPs Today, a significant amount of financial instruments denominated in the currencies of the Member States are cleared by recognised third-country CCPs. For example, the notional amount outstanding at Chicago Mercantile Exchange (CME) in the US is EUR 1.8 trillion for euro-denominated interest-rate derivatives, and SEK 348 billion for SEK denominated interest-rate derivatives. This also raises a series of concerns. First, the implementation of EMIR’s system of equivalence and recognition has shown certain shortcomings in particular regarding ongoing supervision. In particular, after a third-country CCP has been recognised, ESMA has encountered difficulties in accessing information from the CCP, in conducting on-site inspections of the CCP and in sharing information with the relevant EU regulators, supervisors and central banks. As a result, there is a risk that third-country CCP practices and/or adjustments to risk management models go undetected and/or unaddressed, which may have important financial-stability implications for the EU entities. Second, the potential for misalignments between supervisory and central-bank objectives within colleges acquires an additional dimension in the context of third-country CCPs where non-EU authorities are involved. Third, there is a risk that changes to the CCP rules and/or regulatory framework in a third-country could negatively affect regulatory or supervisory outcomes, leading to an un-level playing field between EU and third-country CCPs and creating scope for regulatory or supervisory arbitrage. There is currently no mechanism to ensure that the EU is informed automatically of such changes and can take appropriate measures. Such concerns are likely to become more significant in the coming years because the global nature of capital markets means that the role played by third-country CCPs is set to expand. In addition to the 28 third-country CCPs already recognised by ESMA, a further 12 CCPs from 10 jurisdictions have applied for recognition 21 and are awaiting a decision of the Commission for the equivalence of their regulatory and supervisory regimes. Moreover, a substantial volume of euro-denominated derivatives transactions (and other transactions subject to the EU clearing obligation) is currently cleared in CCPs located in the United Kingdom. When the United Kingdom exits the EU, there will therefore be a distinct shift in the proportion of such transactions being cleared in CCPs outside the EU's jurisdiction, exacerbating the concerns outlined above. This implies significant challenges for safeguarding financial stability in the EU that need to be addressed. In light of these considerations, the Commission adopted a Communication on 4 May 2017 on responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union 22 . The Communication indicated that "further changes [to EMIR] will be necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the Capital Markets Union (CMU)". Need to improve current supervisory arrangements As the EU clearing landscape continues to evolve, the arrangements for crisis prevention and management of CCPs must be as effective as possible. EMIR and the Commission proposal for a Regulation on CCP Recovery and Resolution are important steps in this regard. However, five years after the adoption of EMIR, the growing size, complexity and cross-border dimension of clearing in the EU and globally have highlighted shortcomings in the supervisory arrangements for EU and third-country CCPs. The present proposal therefore sets out specific amendments to EMIR and the ESMA Regulation 23 , in particular to establish clear and coherent supervisory arrangements both for EU and third-country CCPs. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options in order to enhance supervision of CCPs at EU level, involve further the central banks of issue in the supervision of CCPs, and strengthen the ability of the EU to monitor, identify and mitigate third-country CCP risks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforce the overall stability of the EU financial system and to lower further the already low probability (but extremely high-impact) risk of a CCP failure, while keeping costs at a minimum for market participants. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 64 Procedural rules for taking supervisory measures and imposing fines):
1. Where, in carrying out its duties under this Regulation, ESMA finds that there are serious indications of the possible existence of facts liable to constitute one or more of the infringements listed in Annex I, ESMA shall appoint an independent investigation officer within ESMA to investigate the matter. The appointed officer shall not be involved or have been directly or indirectly involved in the supervision or the registration process of the trade repository concerned and shall perform his functions independently from ESMA. 2. The investigation officer shall investigate the alleged infringements, taking into account any comments submitted by the persons who are subject to the investigations, and shall submit a complete file with his findings to ESMA. In order to carry out his tasks, the investigation officer may exercise the power to request information in accordance with Article 61 and to conduct investigations and on-site inspections in accordance with Articles 62 and 63. When using those powers, the investigation officer shall comply with Article 60. Where carrying out his tasks, the investigation officer shall have access to all documents and information gathered by ESMA in its supervisory activities. 3. Upon completion of his investigation and before submitting the file with his findings to ESMA, the investigation officer shall give the persons subject to the investigations the opportunity to be heard on the matters being investigated. The investigation officer shall base his findings only on facts on which the persons concerned have had the opportunity to comment. The rights of the defence of the persons concerned shall be fully respected during investigations under this Article. 4. When submitting the file with the findings referred to in paragraph 3 to ESMA, the investigation officer shall notify the persons who are subject to the investigations. Such persons shall be entitled to have access to the file, subject to the legitimate interest of other persons in the protection of their business secrets. The right of access to the file shall not extend to confidential information or to ESMA's internal preparatory documents. 5. On the basis of the file containing the investigation officer’s findings and, when requested by the persons concerned, after having heard the persons subject to the investigations in accordance with Article 67, ESMA shall decide if one or more of the infringements listed in Annex I has been committed by the persons who have been subject to the investigations and, in such a case, shall take a supervisory measure in accordance with Article 73 and impose a fine in accordance with Article 65. 6. The investigation officer shall not participate in ESMA’s deliberations or in any other way intervene in ESMA’s decision-making process. 7. The Commission shall adopt further rules of procedure for the exercise of the power to impose fines or periodic penalty payments, including provisions on the rights of the defence, temporal provisions, and the collection of fines or periodic penalty payments, and shall adopt detailed rules on the limitation periods for the imposition and enforcement of penalties. The rules referred to in the first subparagraph shall be adopted by means of delegated acts in accordance with Article 82. 8. ESMA shall refer matters to the relevant authorities for investigation and possible criminal prosecution where, in carrying out its duties under this Regulation, it finds that there are serious indications of the possible existence of facts that it knows to be liable to constitute a criminal offence under the applicable law. In addition, ESMA shall refrain from imposing fines or periodic penalty payments where it is aware that a prior acquittal or conviction arising from identical fact or facts which are substantially the same has already acquired the force of res judicata as the result of criminal proceedings under national law.
Article 65 Fines
1. Where, in accordance with Article 64(5), ESMA finds that a trade repository has, intentionally or negligently, committed one of the infringements listed in Annex I, it shall adopt a decision imposing a fine in accordance with paragraph 2 of this Article. An infringement by a trade repository shall be considered to have been committed intentionally if ESMA finds objective factors which demonstrate that the trade repository or its senior management acted deliberately to commit the infringement. 2. The basic amounts of the fines referred to in paragraph 1 shall be included within the following limits: (a) for the infringements referred to in point (c) of Section I of Annex I and in points (c) to (g) of Section II of Annex I, and in points (a) and (b) of Section III of Annex I the amounts of the fines shall be at least EUR 10 000 and shall not exceed EUR 20 000 ; (b) for the infringements referred to in points (a), (b) and (d) to (h) of Section I of Annex I, and in points (a), (b) and (h) of Section II of Annex I, the amounts of the fines shall be at least EUR 5 000 and shall not exceed EUR 10 000 . In order to decide whether the basic amount of the fines should be at the lower, the middle or the higher end of the limits set out in the first subparagraph, ESMA shall have regard to the annual turnover of the preceding business year of the trade repository concerned. The basic amount shall be at the lower end of the limit for trade repositories whose annual turnover is below EUR 1 million, the middle of the limit for the trade repository whose turnover is between EUR 1 and 5 million and the higher end of the limit for the trade repository whose annual turnover is higher than EUR 5 million. 3. The basic amounts set out in paragraph 2 shall be adjusted, if need be, by taking into account aggravating or mitigating factors in accordance with the relevant coefficients set out in Annex II. The relevant aggravating coefficients shall be applied one by one to the basic amount. If more than one aggravating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual aggravating coefficient shall be added to the basic amount. The relevant mitigating coefficients shall be applied one by one to the basic amount. If more than one mitigating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual mitigating coefficient shall be subtracted from the basic amount. 4. Notwithstanding paragraphs 2 and 3, the amount of the fine shall not exceed 20 % of the annual turnover of the trade repository concerned in the preceding business year but, where the trade repository has directly or indirectly benefited financially from the infringement, the amount of the fine shall be at least equal to that benefit. Where an act or omission of a trade repository constitutes more than one infringement listed in Annex I, only the higher fine calculated in accordance with paragraphs 2 and 3 and relating to one of those infringements shall apply.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Derivatives contracts are a key tool for Europe's banks and businesses to manage their risks, whether they are related to changes in interest rates, currency fluctuations or the default of a business counterpart. However, opaque derivatives markets also acted as an unwelcome contagion channel. Derivatives markets must therefore be regulated and supervised effectively to safeguard financial stability. Given the global nature of derivatives markets and in accordance with the 2009 G20 Pittsburgh agreement 1 to reduce the systemic risk linked to extensive use of derivatives, the EU adopted the European Market Infrastructure Regulation (EMIR) in 2012. 2 As a key pillar of EMIR standardised over-the-counter (OTC) derivatives contracts must be cleared through a Central Counterparty (CCP). A CCP is a market infrastructure that reduces systemic risk and enhances financial stability by standing between the two counterparties to a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk) and thereby reducing the risk for both. EMIR also introduced strict prudential, organisational and business conduct requirements for CCPs and established arrangements for their prudential supervision to minimise any risk to users of a CCP and underpin systemic stability. Since 2012 when EMIR was adopted, central clearing has been significantly expanding and CCPs have become increasingly concentrated and integrated across the EU and with third countries. The present proposal ensures that supervisory arrangements keep pace with these developments. It is proposed that the EU equips its Capital Markets Union with a more effective and consistent supervisory system for CCPs, in the interest of further market integration, financial stability and a level-playing field. CCPs have grown in importance since the adoption of EMIR and will expand further in the coming years In the five years since the adoption of EMIR, the volume of CCP activity – in the EU and globally - has grown rapidly both in scale and in scope. This is a sign that the legislation works and is fulfilling its purpose. As of end of June 2016, around 62% of the global value of all OTC derivatives contracts and asset classes (interest rates, credit default, foreign exchange, etc.) were centrally cleared by CCPs 3 , which is equivalent to $337 trillion. About 97% ($328 trillion) of all centrally-cleared derivatives contracts are interest-rate derivatives. At the end of 2015, about 60% of all OTC interest-rate derivatives were centrally cleared, while the corresponding figure by the end of 2009 was 36% 4 . Central clearing has similarly gained in importance in the credit derivatives (so-called CDS) market, with the proportion of outstanding CDSs cleared through CCPs increasing steadily since these data were first reported, i.e. 37% at the end of June 2016 while the corresponding figure was 10% at the end of June 2010 5 . The rapidly expanding role of CCPs in the global financial system not only reflects the introduction of central clearing obligations across different asset classes 6 , but also increased voluntary use of central clearing amid growing awareness of the benefits of central clearing among market participants (clearing obligations have applied only since June 2016) 7 . EMIR requires certain interest-rate derivatives and CDSs to be centrally cleared in line with similar requirements in other G20 countries 8 . Bank capital rules have been changed to incentivise central clearing and make bilateral clearing a costlier option in relative terms 9 , while bilateral transactions are subject to additional collateral requirements since March 2017 10 . The expansion in CCP activity is set to continue in the coming years. Mandatory clearing obligations are likely for additional asset classes 11 and the incentives to mitigate risks and costs are likely to lead to even more voluntary clearing. The May 2017 proposal to amend EMIR in a targeted manner, to improve its effectiveness and proportionality, will reinforce this trend, by creating further incentives for CCPs to offer central clearing of derivatives to counterparties. 12 Finally, deeper and more integrated capital markets as a result of the Capital Markets Union (CMU) will further increase the need for cross-border clearing in the EU, thus increasing the importance and the interconnectedness of CCPs within the financial system. Expanding role of CCPs raises concerns about the need to upgrade supervisory arrangements under EMIR , also in light of the establishment of the Capital Markets Union The growing importance of CCPs in the financial system and the associated concentration of credit risk in these infrastructures have drawn the attention of governments, regulators, supervisors, central banks and market participants. While the scale and scope of centrally-cleared transactions has expanded, the number of CCPs has remained relatively limited. There are currently 17 CCPs established in the EU, all of which are authorised under EMIR to offer their services within the Union - although not all CCPs are authorised to clear all asset classes (e.g. only 2 CCPs clear credit derivatives, only 2 CCPs clear inflation derivatives 13 ). 14 An additional 28 third-country CCPs have been recognised under EMIR's equivalence provisions, allowing them to offer their services in the EU. 15 Accordingly, clearing markets are integrated across the EU and are highly concentrated in certain asset classes . They are also highly interconnected. 16 While increased clearing via properly regulated and supervised CCPs reinforces systemic stability overall, the concentration of risk makes the failure of a CCP a low-probability but potentially extremely high-impact event. Given the centrality of CCPs to the financial system, the increasing systemic importance of CCPs gives rise to concerns. CCPs have themselves become a source of macro-prudential risk, as their failure could cause significant disruption to the financial system and would have systemic effects. For instance, large scale, uncontrolled termination and close-out of contracts cleared by CCPs could lead to liquidity and collateral strains across the market, causing instability in the underlying asset market and the wider financial system. Like some other financial intermediaries, CCPs are also potentially susceptible to “runs” due to clearing members losing confidence in the solvency of a CCP. This could create a liquidity shock for the CCP as it attempts to meet its obligations to return the principal collateral (i.e. initial margin). The impact of a CCP failure due to increased concentration of risk would be amplified by a growing interconnectedness between CCPs both directly and indirectly via their members (usually large global banks) and clients. In response, and in line with the G20 consensus 17 , the Commission adopted a proposal for a Regulation on CCP Recovery and Resolution in November 2016 18 . The objective of the proposal is to ensure that authorities are appropriately prepared to address a failing CCP, safeguarding financial stability and limiting taxpayer costs. The CCP Recovery and Resolution proposal refocused attention on the supervisory arrangements for EU and third-country CCPs included in EMIR and the extent to which these arrangements can be made more effective five years after adoption of EMIR. This proposal is currently under negotiations in the European Parliament and the Council. That ongoing work-stream needs to be coordinated and consistent with the current proposal. Supervisory arrangements for EU CCPs Under EMIR, EU CCPs are supervised by colleges of national supervisors, the European Securities and Markets Authority (ESMA), relevant members of the European System of Central Banks (ESCB), and other relevant authorities (e.g. supervisors of the largest clearing members, supervisors of certain trading venues and central securities depositories). These colleges can include as many as 20 member authorities and they rely on coordination by the home-country authority. These arrangements raise certain concerns in light of the current state of integration in the market that needs to be reflected in the supervisory arrangements. This is also important in order to advance the Capital Markets Union . First, the growing concentration of clearing services in a limited number of CCPs, and the consequential increase in cross-border activity, implies that CCPs in a small number of individual Member States are increasingly relevant for the EU financial system as a whole. Against this trend, the current supervisory arrangements relying mainly on the home-country authority (e.g. the home-country authority is ultimately responsible for important decisions such as the extension of the authorisation or the approval of outsourcing and interoperability arrangements) need to be reconsidered. Second, diverging supervisory practices for CCPs (e.g. different conditions for authorisation or model validation processes) across the EU can create risks of regulatory and supervisory arbitrage for CCPs and indirectly for their clearing members or clients. The Commission has drawn attention to these emerging risks and the need for more supervisory convergence in its Communication on CMU of September 2016 19 and in the public consultation on the operations of the European Supervisory Authorities (ESAs) 20 , both of which highlighted the challenges posed by heterogeneous supervisory practices. Third, the role of central banks - as issuers of currency - is not adequately reflected in CCP colleges. While the mandates of central banks and supervisors may overlap (in particular in areas such as interoperability, liquidity-risk controls etc.), there is a potential for misalignment when supervisory actions impact on key responsibilities of central banks in areas such as price stability, monetary policy and the payment systems. In crisis situations, their misalignments can amplify the risks to financial stability if the assignment of responsibilities between authorities remains unclear. Supervisory arrangements for third-country CCPs Today, a significant amount of financial instruments denominated in the currencies of the Member States are cleared by recognised third-country CCPs. For example, the notional amount outstanding at Chicago Mercantile Exchange (CME) in the US is EUR 1.8 trillion for euro-denominated interest-rate derivatives, and SEK 348 billion for SEK denominated interest-rate derivatives. This also raises a series of concerns. First, the implementation of EMIR’s system of equivalence and recognition has shown certain shortcomings in particular regarding ongoing supervision. In particular, after a third-country CCP has been recognised, ESMA has encountered difficulties in accessing information from the CCP, in conducting on-site inspections of the CCP and in sharing information with the relevant EU regulators, supervisors and central banks. As a result, there is a risk that third-country CCP practices and/or adjustments to risk management models go undetected and/or unaddressed, which may have important financial-stability implications for the EU entities. Second, the potential for misalignments between supervisory and central-bank objectives within colleges acquires an additional dimension in the context of third-country CCPs where non-EU authorities are involved. Third, there is a risk that changes to the CCP rules and/or regulatory framework in a third-country could negatively affect regulatory or supervisory outcomes, leading to an un-level playing field between EU and third-country CCPs and creating scope for regulatory or supervisory arbitrage. There is currently no mechanism to ensure that the EU is informed automatically of such changes and can take appropriate measures. Such concerns are likely to become more significant in the coming years because the global nature of capital markets means that the role played by third-country CCPs is set to expand. In addition to the 28 third-country CCPs already recognised by ESMA, a further 12 CCPs from 10 jurisdictions have applied for recognition 21 and are awaiting a decision of the Commission for the equivalence of their regulatory and supervisory regimes. Moreover, a substantial volume of euro-denominated derivatives transactions (and other transactions subject to the EU clearing obligation) is currently cleared in CCPs located in the United Kingdom. When the United Kingdom exits the EU, there will therefore be a distinct shift in the proportion of such transactions being cleared in CCPs outside the EU's jurisdiction, exacerbating the concerns outlined above. This implies significant challenges for safeguarding financial stability in the EU that need to be addressed. In light of these considerations, the Commission adopted a Communication on 4 May 2017 on responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union 22 . The Communication indicated that "further changes [to EMIR] will be necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the Capital Markets Union (CMU)". Need to improve current supervisory arrangements As the EU clearing landscape continues to evolve, the arrangements for crisis prevention and management of CCPs must be as effective as possible. EMIR and the Commission proposal for a Regulation on CCP Recovery and Resolution are important steps in this regard. However, five years after the adoption of EMIR, the growing size, complexity and cross-border dimension of clearing in the EU and globally have highlighted shortcomings in the supervisory arrangements for EU and third-country CCPs. The present proposal therefore sets out specific amendments to EMIR and the ESMA Regulation 23 , in particular to establish clear and coherent supervisory arrangements both for EU and third-country CCPs. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options in order to enhance supervision of CCPs at EU level, involve further the central banks of issue in the supervision of CCPs, and strengthen the ability of the EU to monitor, identify and mitigate third-country CCP risks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforce the overall stability of the EU financial system and to lower further the already low probability (but extremely high-impact) risk of a CCP failure, while keeping costs at a minimum for market participants. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 65 Fines):
1. Where, in accordance with Article 64(5), ESMA finds that a trade repository has, intentionally or negligently, committed one of the infringements listed in Annex I, it shall adopt a decision imposing a fine in accordance with paragraph 2 of this Article. An infringement by a trade repository shall be considered to have been committed intentionally if ESMA finds objective factors which demonstrate that the trade repository or its senior management acted deliberately to commit the infringement. 2. The basic amounts of the fines referred to in paragraph 1 shall be included within the following limits: (a) for the infringements referred to in point (c) of Section I of Annex I and in points (c) to (g) of Section II of Annex I, and in points (a) and (b) of Section III of Annex I the amounts of the fines shall be at least EUR 10 000 and shall not exceed EUR 200 000 ; (b) for the infringements referred to in points (a), (b) and (d) to (k) of Section I of Annex I, and in points (a), (b) and (h) of Section II of Annex I, the amounts of the fines shall be at least EUR 5 000 and shall not exceed EUR 100 000 ; (c) for the infringements referred to in Section IV of Annex I, the amounts of the fines shall be at least EUR 5 000 and shall not exceed EUR 10 000 . In order to decide whether the basic amount of the fines should be at the lower, the middle or the higher end of the limits set out in the first subparagraph, ESMA shall have regard to the annual turnover of the preceding business year of the trade repository concerned. The basic amount shall be at the lower end of the limit for trade repositories whose annual turnover is below EUR 1 million, the middle of the limit for the trade repository whose turnover is between EUR 1 and 5 million and the higher end of the limit for the trade repository whose annual turnover is higher than EUR 5 million. 3. The basic amounts set out in paragraph 2 shall be adjusted, if need be, by taking into account aggravating or mitigating factors in accordance with the relevant coefficients set out in Annex II. The relevant aggravating coefficients shall be applied one by one to the basic amount. If more than one aggravating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual aggravating coefficient shall be added to the basic amount. The relevant mitigating coefficients shall be applied one by one to the basic amount. If more than one mitigating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual mitigating coefficient shall be subtracted from the basic amount. 4. Notwithstanding paragraphs 2 and 3, the amount of the fine shall not exceed 20 % of the annual turnover of the trade repository concerned in the preceding business year but, where the trade repository has directly or indirectly benefited financially from the infringement, the amount of the fine shall be at least equal to that benefit. Where an act or omission of a trade repository constitutes more than one infringement listed in Annex I, only the higher fine calculated in accordance with paragraphs 2 and 3 and relating to one of those infringements shall apply.
Article 66 Periodic penalty payments
1. ESMA shall, by decision, impose periodic penalty payments in order to compel: (a) a trade repository to put an end to an infringement in accordance with a decision taken pursuant to Article 73(1)(a); or (b) a person referred to in Article 61(1): (i) to supply complete information which has been requested by a decision pursuant to Article 61; (ii) to submit to an investigation and in particular to produce complete records, data, procedures or any other material required and to complete and correct other information provided in an investigation launched by a decision pursuant to Article 62; or (iii) to submit to an on-site inspection ordered by a decision taken pursuant to Article 63. 2. A periodic penalty payment shall be effective and proportionate. The periodic penalty payment shall be imposed for each day of delay. 3. Notwithstanding paragraph 2, the amount of the periodic penalty payments shall be 3 % of the average daily turnover in the preceding business year, or, in the case of natural persons, 2 % of the average daily income in the preceding calendar year. It shall be calculated from the date stipulated in the decision imposing the periodic penalty payment. 4. A periodic penalty payment shall be imposed for a maximum period of six months following the notification of ESMA’s decision. Following the end of the period, ESMA shall review the measure.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 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 3 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 4 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 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 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. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . 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 vulnerabilit y . 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. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (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.
Revised version (Article 66 Periodic penalty payments):
2. A periodic penalty payment shall be effective and proportionate. The periodic penalty payment shall be imposed for each day of delay. 3. Notwithstanding paragraph 2, the amount of the periodic penalty payments shall be 3 % of the average daily turnover in the preceding business year, or, in the case of natural persons, 2 % of the average daily income in the preceding calendar year. It shall be calculated from the date stipulated in the decision imposing the periodic penalty payment. 4. A periodic penalty payment shall be imposed for a maximum period of six months following the notification of ESMA’s decision. Following the end of the period, ESMA shall review the measure.
Article 67 Hearing of the persons concerned
1. Before taking any decision on a fine or periodic penalty payment under Articles 65 and 66, ESMA shall give the persons subject to the proceedings the opportunity to be heard on its findings. ESMA shall base its decisions only on findings on which the persons subject to the proceedings have had an opportunity to comment. 2. The rights of the defence of the persons subject to the proceedings shall be fully respected in the proceedings. They shall be entitled to have access to ESMA’s file, subject to the legitimate interest of other persons in the protection of their business secrets. The right of access to the file shall not extend to confidential information or ESMA’s internal preparatory documents.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Derivatives contracts are a key tool for Europe's banks and businesses to manage their risks, whether they are related to changes in interest rates, currency fluctuations or the default of a business counterpart. However, opaque derivatives markets also acted as an unwelcome contagion channel. Derivatives markets must therefore be regulated and supervised effectively to safeguard financial stability. Given the global nature of derivatives markets and in accordance with the 2009 G20 Pittsburgh agreement 1 to reduce the systemic risk linked to extensive use of derivatives, the EU adopted the European Market Infrastructure Regulation (EMIR) in 2012. 2 As a key pillar of EMIR standardised over-the-counter (OTC) derivatives contracts must be cleared through a Central Counterparty (CCP). A CCP is a market infrastructure that reduces systemic risk and enhances financial stability by standing between the two counterparties to a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk) and thereby reducing the risk for both. EMIR also introduced strict prudential, organisational and business conduct requirements for CCPs and established arrangements for their prudential supervision to minimise any risk to users of a CCP and underpin systemic stability. Since 2012 when EMIR was adopted, central clearing has been significantly expanding and CCPs have become increasingly concentrated and integrated across the EU and with third countries. The present proposal ensures that supervisory arrangements keep pace with these developments. It is proposed that the EU equips its Capital Markets Union with a more effective and consistent supervisory system for CCPs, in the interest of further market integration, financial stability and a level-playing field. CCPs have grown in importance since the adoption of EMIR and will expand further in the coming years In the five years since the adoption of EMIR, the volume of CCP activity – in the EU and globally - has grown rapidly both in scale and in scope. This is a sign that the legislation works and is fulfilling its purpose. As of end of June 2016, around 62% of the global value of all OTC derivatives contracts and asset classes (interest rates, credit default, foreign exchange, etc.) were centrally cleared by CCPs 3 , which is equivalent to $337 trillion. About 97% ($328 trillion) of all centrally-cleared derivatives contracts are interest-rate derivatives. At the end of 2015, about 60% of all OTC interest-rate derivatives were centrally cleared, while the corresponding figure by the end of 2009 was 36% 4 . Central clearing has similarly gained in importance in the credit derivatives (so-called CDS) market, with the proportion of outstanding CDSs cleared through CCPs increasing steadily since these data were first reported, i.e. 37% at the end of June 2016 while the corresponding figure was 10% at the end of June 2010 5 . The rapidly expanding role of CCPs in the global financial system not only reflects the introduction of central clearing obligations across different asset classes 6 , but also increased voluntary use of central clearing amid growing awareness of the benefits of central clearing among market participants (clearing obligations have applied only since June 2016) 7 . EMIR requires certain interest-rate derivatives and CDSs to be centrally cleared in line with similar requirements in other G20 countries 8 . Bank capital rules have been changed to incentivise central clearing and make bilateral clearing a costlier option in relative terms 9 , while bilateral transactions are subject to additional collateral requirements since March 2017 10 . The expansion in CCP activity is set to continue in the coming years. Mandatory clearing obligations are likely for additional asset classes 11 and the incentives to mitigate risks and costs are likely to lead to even more voluntary clearing. The May 2017 proposal to amend EMIR in a targeted manner, to improve its effectiveness and proportionality, will reinforce this trend, by creating further incentives for CCPs to offer central clearing of derivatives to counterparties. 12 Finally, deeper and more integrated capital markets as a result of the Capital Markets Union (CMU) will further increase the need for cross-border clearing in the EU, thus increasing the importance and the interconnectedness of CCPs within the financial system. Expanding role of CCPs raises concerns about the need to upgrade supervisory arrangements under EMIR , also in light of the establishment of the Capital Markets Union The growing importance of CCPs in the financial system and the associated concentration of credit risk in these infrastructures have drawn the attention of governments, regulators, supervisors, central banks and market participants. While the scale and scope of centrally-cleared transactions has expanded, the number of CCPs has remained relatively limited. There are currently 17 CCPs established in the EU, all of which are authorised under EMIR to offer their services within the Union - although not all CCPs are authorised to clear all asset classes (e.g. only 2 CCPs clear credit derivatives, only 2 CCPs clear inflation derivatives 13 ). 14 An additional 28 third-country CCPs have been recognised under EMIR's equivalence provisions, allowing them to offer their services in the EU. 15 Accordingly, clearing markets are integrated across the EU and are highly concentrated in certain asset classes . They are also highly interconnected. 16 While increased clearing via properly regulated and supervised CCPs reinforces systemic stability overall, the concentration of risk makes the failure of a CCP a low-probability but potentially extremely high-impact event. Given the centrality of CCPs to the financial system, the increasing systemic importance of CCPs gives rise to concerns. CCPs have themselves become a source of macro-prudential risk, as their failure could cause significant disruption to the financial system and would have systemic effects. For instance, large scale, uncontrolled termination and close-out of contracts cleared by CCPs could lead to liquidity and collateral strains across the market, causing instability in the underlying asset market and the wider financial system. Like some other financial intermediaries, CCPs are also potentially susceptible to “runs” due to clearing members losing confidence in the solvency of a CCP. This could create a liquidity shock for the CCP as it attempts to meet its obligations to return the principal collateral (i.e. initial margin). The impact of a CCP failure due to increased concentration of risk would be amplified by a growing interconnectedness between CCPs both directly and indirectly via their members (usually large global banks) and clients. In response, and in line with the G20 consensus 17 , the Commission adopted a proposal for a Regulation on CCP Recovery and Resolution in November 2016 18 . The objective of the proposal is to ensure that authorities are appropriately prepared to address a failing CCP, safeguarding financial stability and limiting taxpayer costs. The CCP Recovery and Resolution proposal refocused attention on the supervisory arrangements for EU and third-country CCPs included in EMIR and the extent to which these arrangements can be made more effective five years after adoption of EMIR. This proposal is currently under negotiations in the European Parliament and the Council. That ongoing work-stream needs to be coordinated and consistent with the current proposal. Supervisory arrangements for EU CCPs Under EMIR, EU CCPs are supervised by colleges of national supervisors, the European Securities and Markets Authority (ESMA), relevant members of the European System of Central Banks (ESCB), and other relevant authorities (e.g. supervisors of the largest clearing members, supervisors of certain trading venues and central securities depositories). These colleges can include as many as 20 member authorities and they rely on coordination by the home-country authority. These arrangements raise certain concerns in light of the current state of integration in the market that needs to be reflected in the supervisory arrangements. This is also important in order to advance the Capital Markets Union . First, the growing concentration of clearing services in a limited number of CCPs, and the consequential increase in cross-border activity, implies that CCPs in a small number of individual Member States are increasingly relevant for the EU financial system as a whole. Against this trend, the current supervisory arrangements relying mainly on the home-country authority (e.g. the home-country authority is ultimately responsible for important decisions such as the extension of the authorisation or the approval of outsourcing and interoperability arrangements) need to be reconsidered. Second, diverging supervisory practices for CCPs (e.g. different conditions for authorisation or model validation processes) across the EU can create risks of regulatory and supervisory arbitrage for CCPs and indirectly for their clearing members or clients. The Commission has drawn attention to these emerging risks and the need for more supervisory convergence in its Communication on CMU of September 2016 19 and in the public consultation on the operations of the European Supervisory Authorities (ESAs) 20 , both of which highlighted the challenges posed by heterogeneous supervisory practices. Third, the role of central banks - as issuers of currency - is not adequately reflected in CCP colleges. While the mandates of central banks and supervisors may overlap (in particular in areas such as interoperability, liquidity-risk controls etc.), there is a potential for misalignment when supervisory actions impact on key responsibilities of central banks in areas such as price stability, monetary policy and the payment systems. In crisis situations, their misalignments can amplify the risks to financial stability if the assignment of responsibilities between authorities remains unclear. Supervisory arrangements for third-country CCPs Today, a significant amount of financial instruments denominated in the currencies of the Member States are cleared by recognised third-country CCPs. For example, the notional amount outstanding at Chicago Mercantile Exchange (CME) in the US is EUR 1.8 trillion for euro-denominated interest-rate derivatives, and SEK 348 billion for SEK denominated interest-rate derivatives. This also raises a series of concerns. First, the implementation of EMIR’s system of equivalence and recognition has shown certain shortcomings in particular regarding ongoing supervision. In particular, after a third-country CCP has been recognised, ESMA has encountered difficulties in accessing information from the CCP, in conducting on-site inspections of the CCP and in sharing information with the relevant EU regulators, supervisors and central banks. As a result, there is a risk that third-country CCP practices and/or adjustments to risk management models go undetected and/or unaddressed, which may have important financial-stability implications for the EU entities. Second, the potential for misalignments between supervisory and central-bank objectives within colleges acquires an additional dimension in the context of third-country CCPs where non-EU authorities are involved. Third, there is a risk that changes to the CCP rules and/or regulatory framework in a third-country could negatively affect regulatory or supervisory outcomes, leading to an un-level playing field between EU and third-country CCPs and creating scope for regulatory or supervisory arbitrage. There is currently no mechanism to ensure that the EU is informed automatically of such changes and can take appropriate measures. Such concerns are likely to become more significant in the coming years because the global nature of capital markets means that the role played by third-country CCPs is set to expand. In addition to the 28 third-country CCPs already recognised by ESMA, a further 12 CCPs from 10 jurisdictions have applied for recognition 21 and are awaiting a decision of the Commission for the equivalence of their regulatory and supervisory regimes. Moreover, a substantial volume of euro-denominated derivatives transactions (and other transactions subject to the EU clearing obligation) is currently cleared in CCPs located in the United Kingdom. When the United Kingdom exits the EU, there will therefore be a distinct shift in the proportion of such transactions being cleared in CCPs outside the EU's jurisdiction, exacerbating the concerns outlined above. This implies significant challenges for safeguarding financial stability in the EU that need to be addressed. In light of these considerations, the Commission adopted a Communication on 4 May 2017 on responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union 22 . The Communication indicated that "further changes [to EMIR] will be necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the Capital Markets Union (CMU)". Need to improve current supervisory arrangements As the EU clearing landscape continues to evolve, the arrangements for crisis prevention and management of CCPs must be as effective as possible. EMIR and the Commission proposal for a Regulation on CCP Recovery and Resolution are important steps in this regard. However, five years after the adoption of EMIR, the growing size, complexity and cross-border dimension of clearing in the EU and globally have highlighted shortcomings in the supervisory arrangements for EU and third-country CCPs. The present proposal therefore sets out specific amendments to EMIR and the ESMA Regulation 23 , in particular to establish clear and coherent supervisory arrangements both for EU and third-country CCPs. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options in order to enhance supervision of CCPs at EU level, involve further the central banks of issue in the supervision of CCPs, and strengthen the ability of the EU to monitor, identify and mitigate third-country CCP risks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforce the overall stability of the EU financial system and to lower further the already low probability (but extremely high-impact) risk of a CCP failure, while keeping costs at a minimum for market participants. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 67 Hearing of the persons concerned):
1. Before taking any decision under Article 73(1) and on a periodic penalty payment under Article 66, ESMA shall give the persons who are subject to the proceedings the opportunity to be heard on its findings. ESMA shall base its decisions only on findings on which the persons who are subject to the proceedings have had an opportunity to comment. The first subparagraph of this paragraph shall not apply to the decisions referred to in points (a), (c) and (d) of Article 73(1) if urgent action is needed in order to prevent significant and imminent damage to the financial system or to prevent significant and imminent damage to the integrity, transparency, efficiency and orderly functioning of financial markets, including to the stability or the correctness of data reported to a trade repository. In such a case, ESMA may adopt an interim decision and shall give the persons concerned the opportunity to be heard as soon as possible after taking its decision. 2. The rights of the defence of the persons subject to the proceedings shall be fully respected in the proceedings. They shall be entitled to have access to ESMA’s file, subject to the legitimate interest of other persons in the protection of their business secrets. The right of access to the file shall not extend to confidential information or ESMA’s internal preparatory documents.
Article 68 Disclosure, nature, enforcement and allocation of fines and periodic penalty payments
1. ESMA shall disclose to the public every fine and periodic penalty payment that has been imposed pursuant to Articles 65 and 66 unless such disclosure to the public would seriously jeopardise the financial markets or cause disproportionate damage to the parties involved. Such disclosure shall not contain personal data within the meaning of Regulation (EC) No 45/2001. 2. Fines and periodic penalty payments imposed pursuant to Articles 65 and 66 shall be of an administrative nature. 3. Where ESMA decides to impose no fines or penalty payments, it shall inform the European Parliament, the Council, the Commission, and the competent authorities of the Member State concerned accordingly and shall set out the reasons for its decision. 4. Fines and periodic penalty payments imposed pursuant to Articles 65 and 66 shall be enforceable. Enforcement shall be governed by the rules of civil procedure in force in the State in the territory of which it is carried out. The order for its enforcement shall be appended to the decision without other formality than verification of the authenticity of the decision by the authority which the government of each Member State shall designate for that purpose and shall make known to ESMA and to the Court of Justice. When those formalities have been completed on application by the party concerned, the latter may proceed to enforcement in accordance with the national law, by bringing the matter directly before the competent body. Enforcement may be suspended only by a decision of the Court of Justice. However, the courts of the Member State concerned shall have jurisdiction over complaints that enforcement is being carried out in an irregular manner. 5. The amounts of the fines and periodic penalty payments shall be allocated to the general budget of the European Union.
Article 69 Review by the Court of Justice
The Court of Justice shall have unlimited jurisdiction to review decisions whereby ESMA has imposed a fine or a periodic penalty payment. It may annul, reduce or increase the fine or periodic penalty payment imposed.
Article 70 Amendments to Annex II
In order to take account of developments on financial markets the Commission shall be empowered to adopt delegated acts in accordance with Article 82 concerning measures to amend Annex II.
Article 71 Withdrawal of registration
1. Without prejudice to Article 73, ESMA shall withdraw the registration of a trade repository where the trade repository: (a) expressly renounces the registration or has provided no services for the preceding six months; (b) obtained the registration by making false statements or by any other irregular means; (c) no longer meets the conditions under which it was registered. 2. ESMA shall, without undue delay, notify the relevant competent authority referred to in Article 57(1) of a decision to withdraw the registration of a trade repository. 3. The competent authority of a Member State in which the trade repository performs its services and activities and which considers that one of the conditions referred to in paragraph 1 has been met, may request ESMA to examine whether the conditions for the withdrawal of registration of the trade repository concerned are met. Where ESMA decides not to withdraw the registration of the trade repository concerned, it shall provide full reasons. 4. The competent authority referred to in paragraph 3 shall be the authority designated under Article 22.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 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 3 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 4 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 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 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. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . 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 vulnerabilit y . 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. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (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.
Revised version (Article 71 Withdrawal of registration):
2. ESMA shall, without undue delay, notify the relevant competent authority referred to in Article 57(1) of a decision to withdraw the registration of a trade repository. 3. The competent authority of a Member State in which the trade repository performs its services and activities and which considers that one of the conditions referred to in paragraph 1 has been met, may request ESMA to examine whether the conditions for the withdrawal of registration of the trade repository concerned are met. Where ESMA decides not to withdraw the registration of the trade repository concerned, it shall provide full reasons. 4. The competent authority referred to in paragraph 3 shall be the authority designated under Article 22.
Article 72 Supervisory fees
1. ESMA shall charge fees to the trade repositories in accordance with this Regulation and in accordance with the delegated acts adopted pursuant to paragraph 3. Those fees shall fully cover ESMA’s necessary expenditure relating to the registration and supervision of trade repositories and the reimbursement of any costs that the competent authorities may incur carrying out work pursuant to this Regulation in particular as a result of any delegation of tasks in accordance with Article 74. 2. The amount of a fee charged to a trade repository shall cover all administrative costs incurred by ESMA for its registration and supervision activities and be proportionate to the turnover of the trade repository concerned. 3. The Commission shall adopt a delegated act in accordance with Article 82 to specify further the type of fees, the matters for which fees are due, the amount of the fees and the manner in which they are to be paid.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Derivatives contracts are a key tool for Europe's banks and businesses to manage their risks, whether they are related to changes in interest rates, currency fluctuations or the default of a business counterpart. However, opaque derivatives markets also acted as an unwelcome contagion channel. Derivatives markets must therefore be regulated and supervised effectively to safeguard financial stability. Given the global nature of derivatives markets and in accordance with the 2009 G20 Pittsburgh agreement 1 to reduce the systemic risk linked to extensive use of derivatives, the EU adopted the European Market Infrastructure Regulation (EMIR) in 2012. 2 As a key pillar of EMIR standardised over-the-counter (OTC) derivatives contracts must be cleared through a Central Counterparty (CCP). A CCP is a market infrastructure that reduces systemic risk and enhances financial stability by standing between the two counterparties to a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk) and thereby reducing the risk for both. EMIR also introduced strict prudential, organisational and business conduct requirements for CCPs and established arrangements for their prudential supervision to minimise any risk to users of a CCP and underpin systemic stability. Since 2012 when EMIR was adopted, central clearing has been significantly expanding and CCPs have become increasingly concentrated and integrated across the EU and with third countries. The present proposal ensures that supervisory arrangements keep pace with these developments. It is proposed that the EU equips its Capital Markets Union with a more effective and consistent supervisory system for CCPs, in the interest of further market integration, financial stability and a level-playing field. CCPs have grown in importance since the adoption of EMIR and will expand further in the coming years In the five years since the adoption of EMIR, the volume of CCP activity – in the EU and globally - has grown rapidly both in scale and in scope. This is a sign that the legislation works and is fulfilling its purpose. As of end of June 2016, around 62% of the global value of all OTC derivatives contracts and asset classes (interest rates, credit default, foreign exchange, etc.) were centrally cleared by CCPs 3 , which is equivalent to $337 trillion. About 97% ($328 trillion) of all centrally-cleared derivatives contracts are interest-rate derivatives. At the end of 2015, about 60% of all OTC interest-rate derivatives were centrally cleared, while the corresponding figure by the end of 2009 was 36% 4 . Central clearing has similarly gained in importance in the credit derivatives (so-called CDS) market, with the proportion of outstanding CDSs cleared through CCPs increasing steadily since these data were first reported, i.e. 37% at the end of June 2016 while the corresponding figure was 10% at the end of June 2010 5 . The rapidly expanding role of CCPs in the global financial system not only reflects the introduction of central clearing obligations across different asset classes 6 , but also increased voluntary use of central clearing amid growing awareness of the benefits of central clearing among market participants (clearing obligations have applied only since June 2016) 7 . EMIR requires certain interest-rate derivatives and CDSs to be centrally cleared in line with similar requirements in other G20 countries 8 . Bank capital rules have been changed to incentivise central clearing and make bilateral clearing a costlier option in relative terms 9 , while bilateral transactions are subject to additional collateral requirements since March 2017 10 . The expansion in CCP activity is set to continue in the coming years. Mandatory clearing obligations are likely for additional asset classes 11 and the incentives to mitigate risks and costs are likely to lead to even more voluntary clearing. The May 2017 proposal to amend EMIR in a targeted manner, to improve its effectiveness and proportionality, will reinforce this trend, by creating further incentives for CCPs to offer central clearing of derivatives to counterparties. 12 Finally, deeper and more integrated capital markets as a result of the Capital Markets Union (CMU) will further increase the need for cross-border clearing in the EU, thus increasing the importance and the interconnectedness of CCPs within the financial system. Expanding role of CCPs raises concerns about the need to upgrade supervisory arrangements under EMIR , also in light of the establishment of the Capital Markets Union The growing importance of CCPs in the financial system and the associated concentration of credit risk in these infrastructures have drawn the attention of governments, regulators, supervisors, central banks and market participants. While the scale and scope of centrally-cleared transactions has expanded, the number of CCPs has remained relatively limited. There are currently 17 CCPs established in the EU, all of which are authorised under EMIR to offer their services within the Union - although not all CCPs are authorised to clear all asset classes (e.g. only 2 CCPs clear credit derivatives, only 2 CCPs clear inflation derivatives 13 ). 14 An additional 28 third-country CCPs have been recognised under EMIR's equivalence provisions, allowing them to offer their services in the EU. 15 Accordingly, clearing markets are integrated across the EU and are highly concentrated in certain asset classes . They are also highly interconnected. 16 While increased clearing via properly regulated and supervised CCPs reinforces systemic stability overall, the concentration of risk makes the failure of a CCP a low-probability but potentially extremely high-impact event. Given the centrality of CCPs to the financial system, the increasing systemic importance of CCPs gives rise to concerns. CCPs have themselves become a source of macro-prudential risk, as their failure could cause significant disruption to the financial system and would have systemic effects. For instance, large scale, uncontrolled termination and close-out of contracts cleared by CCPs could lead to liquidity and collateral strains across the market, causing instability in the underlying asset market and the wider financial system. Like some other financial intermediaries, CCPs are also potentially susceptible to “runs” due to clearing members losing confidence in the solvency of a CCP. This could create a liquidity shock for the CCP as it attempts to meet its obligations to return the principal collateral (i.e. initial margin). The impact of a CCP failure due to increased concentration of risk would be amplified by a growing interconnectedness between CCPs both directly and indirectly via their members (usually large global banks) and clients. In response, and in line with the G20 consensus 17 , the Commission adopted a proposal for a Regulation on CCP Recovery and Resolution in November 2016 18 . The objective of the proposal is to ensure that authorities are appropriately prepared to address a failing CCP, safeguarding financial stability and limiting taxpayer costs. The CCP Recovery and Resolution proposal refocused attention on the supervisory arrangements for EU and third-country CCPs included in EMIR and the extent to which these arrangements can be made more effective five years after adoption of EMIR. This proposal is currently under negotiations in the European Parliament and the Council. That ongoing work-stream needs to be coordinated and consistent with the current proposal. Supervisory arrangements for EU CCPs Under EMIR, EU CCPs are supervised by colleges of national supervisors, the European Securities and Markets Authority (ESMA), relevant members of the European System of Central Banks (ESCB), and other relevant authorities (e.g. supervisors of the largest clearing members, supervisors of certain trading venues and central securities depositories). These colleges can include as many as 20 member authorities and they rely on coordination by the home-country authority. These arrangements raise certain concerns in light of the current state of integration in the market that needs to be reflected in the supervisory arrangements. This is also important in order to advance the Capital Markets Union . First, the growing concentration of clearing services in a limited number of CCPs, and the consequential increase in cross-border activity, implies that CCPs in a small number of individual Member States are increasingly relevant for the EU financial system as a whole. Against this trend, the current supervisory arrangements relying mainly on the home-country authority (e.g. the home-country authority is ultimately responsible for important decisions such as the extension of the authorisation or the approval of outsourcing and interoperability arrangements) need to be reconsidered. Second, diverging supervisory practices for CCPs (e.g. different conditions for authorisation or model validation processes) across the EU can create risks of regulatory and supervisory arbitrage for CCPs and indirectly for their clearing members or clients. The Commission has drawn attention to these emerging risks and the need for more supervisory convergence in its Communication on CMU of September 2016 19 and in the public consultation on the operations of the European Supervisory Authorities (ESAs) 20 , both of which highlighted the challenges posed by heterogeneous supervisory practices. Third, the role of central banks - as issuers of currency - is not adequately reflected in CCP colleges. While the mandates of central banks and supervisors may overlap (in particular in areas such as interoperability, liquidity-risk controls etc.), there is a potential for misalignment when supervisory actions impact on key responsibilities of central banks in areas such as price stability, monetary policy and the payment systems. In crisis situations, their misalignments can amplify the risks to financial stability if the assignment of responsibilities between authorities remains unclear. Supervisory arrangements for third-country CCPs Today, a significant amount of financial instruments denominated in the currencies of the Member States are cleared by recognised third-country CCPs. For example, the notional amount outstanding at Chicago Mercantile Exchange (CME) in the US is EUR 1.8 trillion for euro-denominated interest-rate derivatives, and SEK 348 billion for SEK denominated interest-rate derivatives. This also raises a series of concerns. First, the implementation of EMIR’s system of equivalence and recognition has shown certain shortcomings in particular regarding ongoing supervision. In particular, after a third-country CCP has been recognised, ESMA has encountered difficulties in accessing information from the CCP, in conducting on-site inspections of the CCP and in sharing information with the relevant EU regulators, supervisors and central banks. As a result, there is a risk that third-country CCP practices and/or adjustments to risk management models go undetected and/or unaddressed, which may have important financial-stability implications for the EU entities. Second, the potential for misalignments between supervisory and central-bank objectives within colleges acquires an additional dimension in the context of third-country CCPs where non-EU authorities are involved. Third, there is a risk that changes to the CCP rules and/or regulatory framework in a third-country could negatively affect regulatory or supervisory outcomes, leading to an un-level playing field between EU and third-country CCPs and creating scope for regulatory or supervisory arbitrage. There is currently no mechanism to ensure that the EU is informed automatically of such changes and can take appropriate measures. Such concerns are likely to become more significant in the coming years because the global nature of capital markets means that the role played by third-country CCPs is set to expand. In addition to the 28 third-country CCPs already recognised by ESMA, a further 12 CCPs from 10 jurisdictions have applied for recognition 21 and are awaiting a decision of the Commission for the equivalence of their regulatory and supervisory regimes. Moreover, a substantial volume of euro-denominated derivatives transactions (and other transactions subject to the EU clearing obligation) is currently cleared in CCPs located in the United Kingdom. When the United Kingdom exits the EU, there will therefore be a distinct shift in the proportion of such transactions being cleared in CCPs outside the EU's jurisdiction, exacerbating the concerns outlined above. This implies significant challenges for safeguarding financial stability in the EU that need to be addressed. In light of these considerations, the Commission adopted a Communication on 4 May 2017 on responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union 22 . The Communication indicated that "further changes [to EMIR] will be necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the Capital Markets Union (CMU)". Need to improve current supervisory arrangements As the EU clearing landscape continues to evolve, the arrangements for crisis prevention and management of CCPs must be as effective as possible. EMIR and the Commission proposal for a Regulation on CCP Recovery and Resolution are important steps in this regard. However, five years after the adoption of EMIR, the growing size, complexity and cross-border dimension of clearing in the EU and globally have highlighted shortcomings in the supervisory arrangements for EU and third-country CCPs. The present proposal therefore sets out specific amendments to EMIR and the ESMA Regulation 23 , in particular to establish clear and coherent supervisory arrangements both for EU and third-country CCPs. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options in order to enhance supervision of CCPs at EU level, involve further the central banks of issue in the supervision of CCPs, and strengthen the ability of the EU to monitor, identify and mitigate third-country CCP risks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforce the overall stability of the EU financial system and to lower further the already low probability (but extremely high-impact) risk of a CCP failure, while keeping costs at a minimum for market participants. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 72 Supervisory fees):
1. ESMA shall charge fees to the trade repositories in accordance with this Regulation and in accordance with the delegated acts adopted pursuant to paragraph 3. Those fees shall fully cover ESMA’s necessary expenditure relating to the registration and supervision of trade repositories and the reimbursement of any costs that the competent authorities may incur carrying out work pursuant to this Regulation in particular as a result of any delegation of tasks in accordance with Article 74. 2. The amount of any fee charged to a trade repository shall cover all reasonable administrative costs incurred by ESMA in relation to its registration and ESMA's supervisory activities and shall be proportionate to the turnover of the trade repository concerned and the type of registration and supervision exercised by ESMA. 3. The Commission shall adopt a delegated act in accordance with Article 82 to specify further the type of fees, the matters for which fees are due, the amount of the fees and the manner in which they are to be paid.
Article 73 Supervisory measures by ESMA
1. Where, in accordance with Article 64(5), ESMA finds that a trade repository has committed one of the infringements listed in Annex I, it shall take one or more of the following decisions: (a) requiring the trade repository to bring the infringement to an end; (b) imposing fines under Article 65; (c) issuing public notices; (d) as a last resort, withdrawing the registration of the trade repository. 2. When taking the decisions referred to in paragraph 1, ESMA shall take into account the nature and seriousness of the infringement, having regard to the following criteria: (a) the duration and frequency of the infringement; (b) whether the infringement has revealed serious or systemic weaknesses in the undertaking’s procedures or in its management systems or internal controls; (c) whether financial crime has been occasioned, facilitated or otherwise attributable to the infringement; (d) whether the infringement has been committed intentionally or negligently. 3. Without undue delay, ESMA shall notify any decision adopted pursuant to paragraph 1 to the trade repository concerned, and shall communicate it to the competent authorities of the Member States and to the Commission. It shall publicly disclose any such decision on its website within 10 working days from the date when it was adopted. When making public its decision as referred to in the first subparagraph, ESMA shall also make public the right of the trade repository concerned to appeal the decision, the fact, where relevant, that such an appeal has been lodged, specifying that such an appeal does not have suspensive effect, and the fact that it is possible for ESMA’s Board of Appeal to suspend the application of the contested decision in accordance with Article 60(3) of Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 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 3 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 4 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 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 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. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . 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 vulnerabilit y . 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. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (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.
Revised version (Article 73 Supervisory measures by ESMA):
3. Without undue delay, ESMA shall notify any decision adopted pursuant to paragraph 1 to the trade repository concerned, and shall communicate it to the competent authorities of the Member States and to the Commission. It shall publicly disclose any such decision on its website within 10 working days from the date when it was adopted. When making public its decision as referred to in the first subparagraph, ESMA shall also make public the right of the trade repository concerned to appeal the decision, the fact, where relevant, that such an appeal has been lodged, specifying that such an appeal does not have suspensive effect, and the fact that it is possible for ESMA’s Board of Appeal to suspend the application of the contested decision in accordance with Article 60(3) of Regulation (EU) No 1095/2010.
Article 74 Delegation of tasks by ESMA to competent authorities
1. Where necessary for the proper performance of a supervisory task, ESMA may delegate specific supervisory tasks to the competent authority of a Member State in accordance with the guidelines issued by ESMA pursuant to Article 16 of Regulation (EU) No 1095/2010. Such specific supervisory tasks may, in particular, include the power to carry out requests for information in accordance with Article 61 and to conduct investigations and on-site inspections in accordance with Article 62 and Article 63(6). 2. Prior to delegation of a task, ESMA shall consult the relevant competent authority. Such consultation shall concern: (a) the scope of the task to be delegated; (b) the timetable for the performance of the task; and (c) the transmission of necessary information by and to ESMA. 3. In accordance with the regulation on fees adopted by the Commission pursuant to Article 72(3), ESMA shall reimburse a competent authority for costs incurred as a result of carrying out delegated tasks. 4. ESMA shall review the decision referred to in paragraph 1 at appropriate intervals. A delegation may be revoked at any time. 5. A delegation of tasks shall not affect the responsibility of ESMA and shall not limit ESMA’s ability to conduct and oversee the delegated activity. Supervisory responsibilities under this Regulation, including registration decisions, final assessments and follow-up decisions concerning infringements, shall not be delegated.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 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 3 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 4 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 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 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. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . 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 vulnerabilit y . 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. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (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.
Revised version (Article 74 Delegation of tasks by ESMA to competent authorities):
1. Where necessary for the proper performance of a supervisory task, ESMA may delegate specific supervisory tasks to the competent authority of a Member State in accordance with the guidelines issued by ESMA pursuant to Article 16 of Regulation (EU) No 1095/2010. Such specific supervisory tasks may, in particular, include the power to carry out requests for information in accordance with Article 61 and to conduct investigations and on-site inspections in accordance with Article 62 and Article 63(6). 3. In accordance with the regulation on fees adopted by the Commission pursuant to Article 72(3), ESMA shall reimburse a competent authority for costs incurred as a result of carrying out delegated tasks. 4. ESMA shall review the decision referred to in paragraph 1 at appropriate intervals. A delegation may be revoked at any time. 5. A delegation of tasks shall not affect the responsibility of ESMA and shall not limit ESMA’s ability to conduct and oversee the delegated activity. Supervisory responsibilities under this Regulation, including registration decisions, final assessments and follow-up decisions concerning infringements, shall not be delegated.