Article 10 Non-financial counterparties
1. Where a non-financial counterparty takes positions in OTC derivative contracts and those positions exceed the clearing threshold as specified under paragraph 3, that non-financial counterparty shall: (a) immediately notify ESMA and the competent authority referred to in paragraph 5 thereof; (b) become subject to the clearing obligation for future contracts in accordance with Article 4 if the rolling average position over 30 working days exceeds the threshold; and (c) clear all relevant future contracts within four months of becoming subject to the clearing obligation. 2. A non-financial counterparty that has become subject to the clearing obligation in accordance with paragraph 1(b) and that subsequently demonstrates to the authority designated in accordance with paragraph 5 that its rolling average position over 30 working days does not exceed the clearing threshold, shall no longer be subject to the clearing obligation set out in Article 4. 3. In calculating the positions referred to in paragraph 1, the non-financial counterparty shall include all the OTC derivative contracts entered into by the non-financial counterparty or by other non-financial entities within the group to which the non-financial counterparty belongs, which are not objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the non-financial counterparty or of that group. 4. In order to ensure consistent application of this Article, ESMA shall develop draft regulatory technical standards, after consulting the ESRB and other relevant authorities, specifying: (a) criteria for establishing which OTC derivative contracts are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity referred to in paragraph 3; and (b) values of the clearing thresholds, which are determined taking into account the systemic relevance of the sum of net positions and exposures per counterparty and per class of OTC derivatives. After conducting an open public consultation, 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. After consulting the ESRB and other relevant authorities, ESMA shall periodically review the thresholds and, where necessary, propose regulatory technical standards to amend them. 5. Each Member State shall designate an authority responsible for ensuring that the obligation under paragraph 1 is met.
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 10 Non-financial counterparties):
1. Every 12 months, a non-financial counterparty taking positions in OTC derivative contracts may calculate its aggregate month-end average position for the previous 12 months in accordance with paragraph 3. Where a non-financial counterparty does not calculate its positions, or where the result of that calculation in respect of one or more classes of OTC derivatives exceeds the clearing thresholds specified pursuant to point (b) of the first subparagraph of paragraph 4, that non-financial counterparty shall: (a) immediately notify ESMA and the relevant competent authority thereof, and, where relevant, indicate the period used for the calculation; (b) establish clearing arrangements within four months of the notification referred to in point (a) of this subparagraph; (c) become subject to the clearing obligation referred to in Article 4 for the OTC derivative contracts entered into or novated more than four months following the notification referred to in point (a) of this subparagraph that pertain to those asset classes in respect of which the result of the calculation exceeds the clearing thresholds or, where the non-financial counterparty has not calculated its position, that pertain to any class of OTC derivatives which is subject to the clearing obligation. 2. A non-financial counterparty that is subject to the clearing obligation referred to in Article 4 on 17 June 2019 or that becomes subject to the clearing obligation in accordance with the second subparagraph of paragraph 1 of this Article, shall remain subject to that obligation and shall continue clearing until that non-financial counterparty demonstrates to the relevant competent authority that its aggregate month-end average position for the previous 12 months does not exceed the clearing threshold specified pursuant to point (b) of paragraph 4 of this Article. The non-financial counterparty shall be able to demonstrate to the relevant competent authority that the calculation of the aggregate month-end average position for the previous 12 months does not lead to a systematic underestimation of the position. 2a. The relevant competent authorities of the non-financial counterparty and of the other entities within the group shall establish cooperation procedures to ensure the effective calculation of the positions at the group level. 3. In calculating the positions referred to in paragraph 1, the non-financial counterparty shall include all the OTC derivative contracts entered into by the non-financial counterparty or by other non-financial entities within the group to which the non-financial counterparty belongs, which are not objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the non-financial counterparty or of that group. 4. In order to ensure consistent application of this Article, ESMA shall develop draft regulatory technical standards, after consulting the ESRB and other relevant authorities, specifying: (a) criteria for establishing which OTC derivative contracts are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity referred to in paragraph 3; and (b) values of the clearing thresholds, which are determined taking into account the systemic relevance of the sum of net positions and exposures per counterparty and per class of OTC derivatives. After conducting an open public consultation, 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. After consulting the ESRB and other relevant authorities, ESMA shall periodically review the clearing thresholds referred to in point (b) of the first subparagraph and, where necessary taking into account, in particular, the interconnectedness of financial counterparties, propose to amend the regulatory technical standards in accordance with this paragraph. That periodic review shall be accompanied by a report by ESMA on the subject. 5. Each Member State shall designate an authority responsible for ensuring that the obligation under paragraph 1 is met.
Article 11 Risk-mitigation techniques for OTC derivative contracts not cleared by a CCP
1. Financial counterparties and non-financial counterparties that enter into an OTC derivative contract not cleared by a CCP, shall ensure, exercising due diligence, that appropriate procedures and arrangements are in place to measure, monitor and mitigate operational risk and counterparty credit risk, including at least: (a) the timely confirmation, where available, by electronic means, of the terms of the relevant OTC derivative contract; (b) formalised processes which are robust, resilient and auditable in order to reconcile portfolios, to manage the associated risk and to identify disputes between parties early and resolve them, and to monitor the value of outstanding contracts. 2. Financial counterparties and non-financial counterparties referred to in Article 10 shall mark-to-market on a daily basis the value of outstanding contracts. Where market conditions prevent marking-to-market, reliable and prudent marking-to-model shall be used. 3. Financial counterparties shall have risk-management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivative contracts that are entered into on or after 16 August 2012. Non-financial counterparties referred to in Article 10 shall have risk-management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivative contracts that are entered into on or after the clearing threshold is exceeded. 4. Financial counterparties shall hold an appropriate and proportionate amount of capital to manage the risk not covered by appropriate exchange of collateral. 5. The requirement laid down in paragraph 3 of this Article shall not apply to an intragroup transaction referred to in Article 3 that is entered into by counterparties which are established in the same Member State provided that there is no current or foreseen practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between counterparties. 6. An intragroup transaction referred to in Article 3(2)(a), (b) or (c) that is entered into by counterparties which are established in different Member States shall be exempt totally or partially from the requirement laid down in paragraph 3 of this Article, on the basis of a positive decision of both the relevant competent authorities, provided that the following conditions are fulfilled: (a) the risk-management procedures of the counterparties are adequately sound, robust and consistent with the level of complexity of the derivative transaction; (b) there is no current or foreseen practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between the counterparties. If the competent authorities fail to reach a positive decision within 30 calendar days of receipt of the application for exemption, ESMA may assist those authorities in reaching agreement in accordance with its powers under Article 19 of Regulation (EU) No 1095/2010. 7. An intragroup transaction referred to in Article 3(1) that is entered into by non-financial counterparties which are established in different Member States shall be exempt from the requirement laid down in paragraph 3 of this Article, provided that the following conditions are fulfilled: The non-financial counterparties shall notify their intention to apply the exemption to the competent authorities referred to in Article 10(5). The exemption shall be valid unless either of the notified competent authorities does not agree upon fulfilment of the conditions referred to in point (a) or (b) of the first subparagraph within three months of the date of the notification. 8. An intragroup transaction referred to in Article 3(2)(a) to (d) that is entered into by a counterparty which is established in the Union and a counterparty which is established in a third-country jurisdiction shall be exempt totally or partially from the requirement laid down in paragraph 3 of this Article, on the basis of a positive decision of the relevant competent authority responsible for supervision of the counterparty which is established in the Union, provided that the following conditions are fulfilled: 9. An intragroup transaction referred to in Article 3(1) that is entered into by a non-financial counterparty which is established in the Union and a counterparty which is established in a third-country jurisdiction shall be exempt from the requirement laid down in paragraph 3 of this Article, provided that the following conditions are fulfilled: The non-financial counterparty shall notify its intention to apply the exemption to the competent authority referred to in Article 10(5). The exemption shall be valid unless the notified competent authority does not agree upon fulfilment of the conditions referred to in point (a) or (b) of the first subparagraph within three months of the date of notification. 10. An intragroup transaction referred to in Article 3(1) that is entered into by a non-financial counterparty and a financial counterparty which are established in different Member States shall be exempt totally or partially from the requirement laid down in paragraph 3 of this Article, on the basis of a positive decision of the relevant competent authority responsible for supervision of the financial counterparty, provided that the following conditions are fulfilled: The relevant competent authority responsible for supervision of the financial counterparty shall notify any such decision to the competent authority referred to in Article 10(5). The exemption is valid unless the notified competent authority does not agree upon fulfilment of the conditions referred to in point (a) or (b) of the first subparagraph. If there is disagreement between the competent authorities, ESMA may assist those authorities in reaching an agreement in accordance with its powers under Article 19 of Regulation (EU) No 1095/2010. 11. The counterparty of an intragroup transaction which has been exempted from the requirement laid down in paragraph 3 shall publicly disclose information on the exemption. A competent authority shall notify ESMA of any decision adopted pursuant to paragraph 6, 8 or 10, or any notification received pursuant to paragraph 7, 9 or 10, and shall provide ESMA with the details of the intragroup transaction concerned. 12. The obligations set out in paragraphs 1 to 11 shall apply to OTC derivative contracts entered into between third country entities that would be subject to those obligations if they were established in the Union, provided that those contracts have a direct, substantial and foreseeable effect within the Union or where such obligation is necessary or appropriate to prevent the evasion of any provision of this Regulation. 13. ESMA shall regularly monitor the activity in derivatives not eligible for clearing in order to identify cases where a particular class of derivatives may pose systemic risk and to prevent regulatory arbitrage between cleared and non-cleared derivative transactions. In particular, ESMA shall, after consulting the ESRB, take action in accordance with Article 5(3) or review the regulatory technical standards on margin requirements laid down in paragraph 14 of this Article and in Article 41. 14. In order to ensure consistent application of this Article, ESMA shall draft regulatory technical standards specifying: (a) the procedures and arrangements referred to in paragraph 1; (b) the market conditions that prevent marking-to-market and the criteria for using marking-to-model referred to in paragraph 2; (c) the details of the exempted intragroup transactions to be included in the notification referred to in paragraphs 7, 9 and 10; (d) the details of the information on exempted intragroup transactions referred to in paragraph 11; (e) the contracts that are considered to have a direct, substantial and foreseeable effect within the Union or the cases where it is necessary or appropriate to prevent the evasion of any provision of this Regulation as referred to in paragraph 12; 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. 15. In order to ensure consistent application of this Article, the ESAs shall develop common draft regulatory technical standards specifying: (a) the risk-management procedures, including the levels and type of collateral and segregation arrangements, required for compliance with paragraph 3; (b) the procedures for the counterparties and the relevant competent authorities to be followed when applying exemptions under paragraphs 6 to 10; (c) the applicable criteria referred to in paragraphs 5 to 10 including in particular what is to be considered as a practical or legal impediment to the prompt transfer of own funds and repayment of liabilities between the counterparties. The level and type of collateral required with respect to OTC derivative contracts that are concluded by covered bond entities in connection with a covered bond, or by a securitisation special purpose entity in connection with a securitisation within the meaning of this Regulation and meeting the conditions of Article 4(5) of this Regulation and the requirements set out in Article 18, and in Articles 19 to 22 or 23 to 26 of Regulation (EU) 2017/2402 (the Securitisation Regulation) shall be determined taking into account any impediments faced in exchanging collateral with respect to existing collateral arrangements under the covered bond or securitisation. The ESAs shall submit those draft regulatory technical standards to the Commission by 18 July 2018. Depending on the legal nature of the counterparty, power is delegated to the Commission to adopt the regulatory technical standards referred to in this paragraph in accordance with Articles 10 to 14 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 or (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 11 Risk-mitigation techniques for OTC derivative contracts not cleared by a CCP):
1. Financial counterparties and non-financial counterparties that enter into an OTC derivative contract not cleared by a CCP, shall ensure, exercising due diligence, that appropriate procedures and arrangements are in place to measure, monitor and mitigate operational risk and counterparty credit risk, including at least: (a) the timely confirmation, where available, by electronic means, of the terms of the relevant OTC derivative contract; (b) formalised processes which are robust, resilient and auditable in order to reconcile portfolios, to manage the associated risk and to identify disputes between parties early and resolve them, and to monitor the value of outstanding contracts. 2. Financial counterparties and non-financial counterparties referred to in Article 10 shall mark-to-market on a daily basis the value of outstanding contracts. Where market conditions prevent marking-to-market, reliable and prudent marking-to-model shall be used. 3. Financial counterparties shall have risk-management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivative contracts that are entered into on or after 16 August 2012. Non-financial counterparties referred to in Article 10 shall have risk-management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivative contracts that are entered into on or after the clearing threshold is exceeded. 4. Financial counterparties shall hold an appropriate and proportionate amount of capital to manage the risk not covered by appropriate exchange of collateral. 5. The requirement laid down in paragraph 3 of this Article shall not apply to an intragroup transaction referred to in Article 3 that is entered into by counterparties which are established in the same Member State provided that there is no current or foreseen practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between counterparties. 6. An intragroup transaction referred to in Article 3(2)(a), (b) or (c) that is entered into by counterparties which are established in different Member States shall be exempt totally or partially from the requirement laid down in paragraph 3 of this Article, on the basis of a positive decision of both the relevant competent authorities, provided that the following conditions are fulfilled: (a) the risk-management procedures of the counterparties are adequately sound, robust and consistent with the level of complexity of the derivative transaction; (b) there is no current or foreseen practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between the counterparties. If the competent authorities fail to reach a positive decision within 30 calendar days of receipt of the application for exemption, ESMA may assist those authorities in reaching agreement in accordance with its powers under Article 19 of Regulation (EU) No 1095/2010. 7. An intragroup transaction referred to in Article 3(1) that is entered into by non-financial counterparties which are established in different Member States shall be exempt from the requirement laid down in paragraph 3 of this Article, provided that the following conditions are fulfilled: The non-financial counterparties shall notify their intention to apply the exemption to the competent authorities referred to in Article 10(5). The exemption shall be valid unless either of the notified competent authorities does not agree upon fulfilment of the conditions referred to in point (a) or (b) of the first subparagraph within three months of the date of the notification. 8. An intragroup transaction referred to in Article 3(2)(a) to (d) that is entered into by a counterparty which is established in the Union and a counterparty which is established in a third-country jurisdiction shall be exempt totally or partially from the requirement laid down in paragraph 3 of this Article, on the basis of a positive decision of the relevant competent authority responsible for supervision of the counterparty which is established in the Union, provided that the following conditions are fulfilled: 9. An intragroup transaction referred to in Article 3(1) that is entered into by a non-financial counterparty which is established in the Union and a counterparty which is established in a third-country jurisdiction shall be exempt from the requirement laid down in paragraph 3 of this Article, provided that the following conditions are fulfilled: The non-financial counterparty shall notify its intention to apply the exemption to the competent authority referred to in Article 10(5). The exemption shall be valid unless the notified competent authority does not agree upon fulfilment of the conditions referred to in point (a) or (b) of the first subparagraph within three months of the date of notification. 10. An intragroup transaction referred to in Article 3(1) that is entered into by a non-financial counterparty and a financial counterparty which are established in different Member States shall be exempt totally or partially from the requirement laid down in paragraph 3 of this Article, on the basis of a positive decision of the relevant competent authority responsible for supervision of the financial counterparty, provided that the following conditions are fulfilled: The relevant competent authority responsible for supervision of the financial counterparty shall notify any such decision to the competent authority referred to in Article 10(5). The exemption is valid unless the notified competent authority does not agree upon fulfilment of the conditions referred to in point (a) or (b) of the first subparagraph. If there is disagreement between the competent authorities, ESMA may assist those authorities in reaching an agreement in accordance with its powers under Article 19 of Regulation (EU) No 1095/2010. 11. The counterparty of an intragroup transaction which has been exempted from the requirement laid down in paragraph 3 shall publicly disclose information on the exemption. A competent authority shall notify ESMA of any decision adopted pursuant to paragraph 6, 8 or 10, or any notification received pursuant to paragraph 7, 9 or 10, and shall provide ESMA with the details of the intragroup transaction concerned. 12. The obligations set out in paragraphs 1 to 11 shall apply to OTC derivative contracts entered into between third country entities that would be subject to those obligations if they were established in the Union, provided that those contracts have a direct, substantial and foreseeable effect within the Union or where such obligation is necessary or appropriate to prevent the evasion of any provision of this Regulation. 13. ESMA shall regularly monitor the activity in derivatives not eligible for clearing in order to identify cases where a particular class of derivatives may pose systemic risk and to prevent regulatory arbitrage between cleared and non-cleared derivative transactions. In particular, ESMA shall, after consulting the ESRB, take action in accordance with Article 5(3) or review the regulatory technical standards on margin requirements laid down in paragraph 14 of this Article and in Article 41. 14. In order to ensure consistent application of this Article, ESMA shall draft regulatory technical standards specifying: (a) the procedures and arrangements referred to in paragraph 1; (b) the market conditions that prevent marking-to-market and the criteria for using marking-to-model referred to in paragraph 2; (c) the details of the exempted intragroup transactions to be included in the notification referred to in paragraphs 7, 9 and 10; (d) the details of the information on exempted intragroup transactions referred to in paragraph 11; (e) the contracts that are considered to have a direct, substantial and foreseeable effect within the Union or the cases where it is necessary or appropriate to prevent the evasion of any provision of this Regulation as referred to in paragraph 12; 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. 15. In order to ensure consistent application of this Article, the ESAs shall develop common draft regulatory technical standards specifying: (a) the risk-management procedures, including the levels and type of collateral and segregation arrangements referred to in paragraph 3; (aa) the supervisory procedures to ensure initial and ongoing validation of those risk-management procedures; (b) the procedures for the counterparties and the relevant competent authorities to be followed when applying exemptions under paragraphs 6 to 10; (c) the applicable criteria referred to in paragraphs 5 to 10 including in particular what is to be considered as a practical or legal impediment to the prompt transfer of own funds and repayment of liabilities between the counterparties. The level and type of collateral required with respect to OTC derivative contracts that are concluded by covered bond entities in connection with a covered bond, or by a securitisation special purpose entity in connection with a securitisation within the meaning of this Regulation and meeting the conditions of Article 4(5) of this Regulation and the requirements set out in Article 18, and in Articles 19 to 22 or 23 to 26 of Regulation (EU) 2017/2402 (the Securitisation Regulation) shall be determined taking into account any impediments faced in exchanging collateral with respect to existing collateral arrangements under the covered bond or securitisation. The ESAs shall submit those draft regulatory technical standards, except for those referred to in point (aa) of the first subparagraph, to the Commission by 18 July 2018. EBA, in cooperation with ESMA and EIOPA, shall submit the draft regulatory technical standards referred to in point (aa) of the first subparagraph to the Commission by 18 June 2020. Depending on the legal nature of the counterparty, power is delegated to the Commission to adopt the regulatory technical standards referred to in this paragraph in accordance with Articles 10 to 14 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 or (EU) No 1095/2010.
Article 12 Penalties
1. Member States shall lay down the rules on penalties applicable to infringements of the rules under this Title and shall take all measures necessary to ensure that they are implemented. Those penalties shall include at least administrative fines. The penalties provided for shall be effective, proportionate and dissuasive. 2. Member States shall ensure that the competent authorities responsible for the supervision of financial, and, where appropriate, non-financial counterparties disclose every penalty that has been imposed for infringements of Articles 4, 5 and 7 to 11 to the public, unless such disclosure would seriously jeopardise the financial markets or cause disproportionate damage to the parties involved. Member States shall, at regular intervals, publish assessment reports on the effectiveness of the penalty rules being applied. Such disclosure and publication shall not contain personal data within the meaning of Article 2(a) of Directive 95/46/EC. By 17 February 2013, the Member States shall notify the rules referred to in paragraph 1 to the Commission. They shall notify the Commission of any subsequent amendment thereto without delay. 3. An infringement of the rules under this Title shall not affect the validity of an OTC derivative contract or the possibility for the parties to enforce the provisions of an OTC derivative contract. An infringement of the rules under this Title shall not give rise to any right to compensation from a party to an OTC derivative contract.
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 12 Penalties):
1. Member States shall lay down the rules on penalties applicable to infringements of the rules under this Title and shall take all measures necessary to ensure that they are implemented. Those penalties shall include at least administrative fines. The penalties provided for shall be effective, proportionate and dissuasive. 1a. Without prejudice to paragraph 1 of this Article and to the right of Member States to provide for and impose criminal penalties, the competent authority shall, by decision, impose administrative penalties or periodic penalty payments, or request competent judicial authorities to impose penalties or periodic penalty payments, on the entities subject to the reporting obligation pursuant to Article 9 where the details reported repeatedly contain systematic manifest errors. The periodic penalty payment referred to in the first subparagraph shall not exceed a maximum of 1 % of the average daily turnover for the preceding business year which, in the case of an ongoing infringement, the entity shall be obliged to pay for every day that the infringement continues, until compliance with the obligation is established or restored. The periodic penalty payment may be imposed for a maximum period of six months from the date set out in the decision of the competent authority requiring the termination of an infringement and imposing the periodic penalty payment. 2. Member States shall ensure that the competent authorities responsible for the supervision of financial, and, where appropriate, non-financial counterparties disclose every penalty that has been imposed for infringements of Articles 4, 5 and 7 to 11 to the public, unless such disclosure would seriously jeopardise the financial markets or cause disproportionate damage to the parties involved. Member States shall, at regular intervals, publish assessment reports on the effectiveness of the penalty rules being applied. Such disclosure and publication shall not contain personal data within the meaning of Article 2(a) of Directive 95/46/EC. By 17 February 2013, the Member States shall notify the rules referred to in paragraph 1 to the Commission. They shall notify the Commission of any subsequent amendment thereto without delay. 3. An infringement of the rules under this Title shall not affect the validity of an OTC derivative contract or the possibility for the parties to enforce the provisions of an OTC derivative contract. An infringement of the rules under this Title shall not give rise to any right to compensation from a party to an OTC derivative contract. 4. By way of derogation from paragraphs 1 and 1a, where the legal system of a Member State does not provide for administrative penalties, this Article may be applied in such a manner that the penalty is initiated by the competent authority and imposed by judicial authorities, while ensuring that those legal remedies are effective and have an equivalent effect to the administrative penalties imposed by competent authorities. In any event, the penalties imposed shall be effective, proportionate and dissuasive. Those Member States shall notify to the Commission the provisions of their laws which they adopt pursuant to this paragraph by 24 December 2024 and, without delay, any subsequent amending law or amendment affecting them. 5. ESMA, in cooperation with EBA, EIOPA and the ESRB, shall develop draft regulatory technical standards to specify what constitutes systematic manifest errors as referred to in the paragraph 1a. ESMA shall submit the draft regulatory technical standards referred to in the first subparagraph to the Commission by 25 December 2025. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 13 Mechanism to avoid duplicative or conflicting rules
1. The Commission shall be assisted by ESMA in monitoring and preparing reports to the European Parliament and to the Council on the international application of principles laid down in Articles 4, 9, 10 and 11, in particular with regard to potential duplicative or conflicting requirements on market participants, and recommend possible action. 2. The Commission may adopt implementing acts declaring that the legal, supervisory and enforcement arrangements of a third country: (a) are equivalent to the requirements laid down in this Regulation under Articles 4, 9, 10 and 11; (b) ensure protection of professional secrecy that is equivalent to that set out in this Regulation; and (c) are being effectively applied and enforced in an equitable and non-distortive manner so as to ensure effective supervision and enforcement in that third country. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 86(2). 3. An implementing act on equivalence as referred to in paragraph 2 shall imply that counterparties entering into a transaction subject to this Regulation shall be deemed to have fulfilled the obligations contained in Articles 4, 9, 10 and 11 where at least one of the counterparties is established in that third country. 4. The Commission shall, in cooperation with ESMA, monitor the effective implementation by third countries, for which an implementing act on equivalence has been adopted, of the requirements equivalent to those laid down in Articles 4, 9, 10 and 11 and regularly report, at least on an annual basis, to the European Parliament and the Council. Where the report reveals an insufficient or inconsistent application of the equivalent requirements by third country authorities, the Commission shall, within 30 calendar days of the presentation of the report, withdraw the recognition as equivalent of the third country legal framework in question. Where an implementing act on equivalence is withdrawn, counterparties shall automatically be subject again to all requirements laid down in this Regulation.
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 13 Mechanism to avoid duplicative or conflicting rules with regard to OTC derivative contracts not cleared by a CCP):
1. The Commission shall be assisted by the ESAs in monitoring the international application of principles laid down in Article 11, in particular with regard to potential duplicative or conflicting requirements on market participants, and recommend possible action. 2. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 86(2). 3. An implementing act on equivalence as referred to in paragraph 2 shall imply that counterparties entering into an OTC derivative contract not cleared by a CCP subject to this Regulation shall be deemed to have fulfilled the obligations contained in Article 11 where at least one of the counterparties is subject to the requirements which are considered equivalent under that implementing act on equivalence.
Article 14 Authorisation of a CCP
1. Where a legal person established in the Union intends to provide clearing services as a CCP, it shall apply for authorisation to the competent authority of the Member State where it is established (the CCP’s competent authority), in accordance with the procedure set out in Article 17. 2. Once authorisation has been granted in accordance with Article 17, it shall be effective for the entire territory of the Union. 3. Authorisation referred to in paragraph 1 shall be granted only for activities linked to clearing and shall specify the services or activities which the CCP is authorised to provide or perform including the classes of financial instruments covered by such authorisation. 4. A CCP shall comply at all times with the conditions necessary for authorisation. A CCP shall, without undue delay, notify the competent authority of any material changes affecting the conditions for authorisation. 5. Authorisation referred to in paragraph 1 shall not prevent Member States from adopting or continuing to apply, in respect of CCPs established in their territory, additional requirements including certain requirements for authorisation under Directive 2006/48/EC.
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 14 Authorisation of a CCP):
1. Where a legal person established in the Union intends to provide clearing services as a CCP, it shall apply for authorisation to the competent authority of the Member State where it is established (the CCP’s competent authority), in accordance with the procedure set out in Article 17. 2. Once authorisation has been granted in accordance with Article 17, it shall be effective for the entire territory of the Union. 3. The authorisation referred to in paragraph 1 shall be granted for services and activities linked to clearing and shall specify the services or activities for which the CCP is authorised to provide or perform clearing services, including the classes of derivatives, securities, other financial instruments or non-financial instruments covered by such authorisation. An entity applying for authorisation as a CCP to clear financial instruments shall include in its application the classes of non-financial instruments suitable for clearing that such CCP intends to clear. 4. A CCP shall comply at all times with the conditions necessary for authorisation. A CCP shall, without undue delay, notify the competent authority of any material changes affecting the conditions for authorisation. 5. Authorisation referred to in paragraph 1 shall not prevent Member States from adopting or continuing to apply, in respect of CCPs established in their territory, additional requirements including certain requirements for authorisation under Directive 2006/48/EC. 6. ESMA, in close cooperation with the ESCB, shall develop draft regulatory technical standards to specify the list of required documents that are to accompany an application for authorisation as referred to in paragraph 1 and to specify the information that such documents are to contain with a view to demonstrating that the applicant CCP complies with all relevant requirements of this Regulation. ESMA shall submit the draft regulatory technical standards referred to in the first subparagraph to the Commission by 25 December 2025. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 7. ESMA shall develop draft implementing technical standards to specify the electronic format of the application for authorisation referred to in paragraph 1 of this Article to be submitted to the central database. ESMA shall submit the draft implementing technical standards referred to in the first subparagraph to the Commission by 25 December 2025. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph of this paragraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Article 15 Extension of activities and services
1. A CCP wishing to extend its business to additional services or activities not covered by the initial authorisation shall submit a request for extension to the CCP’s competent authority. The offering of clearing services for which the CCP has not already been authorised shall be considered to be an extension of that authorisation. The extension of authorisation shall be made in accordance with the procedure set out under Article 17. 2. Where a CCP wishes to extend its business into a Member State other than that where it is established, the CCP’s competent authority shall immediately notify the competent authority of that other Member State.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 15 Extension of activities and services):
1. A CCP wishing to extend its business to additional services or activities not covered by the initial authorisation shall submit a request for extension to the CCP’s competent authority. The offering of clearing services for which the CCP has not already been authorised shall be considered to be an extension of that authorisation. The extension of authorisation shall be made in accordance with the procedure set out under Article 17. 2. Where a CCP wishes to extend its business into a Member State other than that where it is established, the CCP’s competent authority shall immediately notify the competent authority of that other Member State. 3. In order to ensure consistent application of this Article, ESMA shall, in cooperation with the ESCB, develop draft regulatory technical standards specifying the conditions under which additional services or activities to which a CCP wishes to extend its business are not covered by the initial authorisation and therefore require an extension of authorisation in accordance with paragraph 1 of this Article and also specifying the procedure for consulting the college established in accordance with Article 18 on whether or not those conditions are met. ESMA shall submit those draft regulatory technical standards to the Commission by 2 January 2021. 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.
Article 16 Capital requirements
1. A CCP shall have a permanent and available initial capital of at least EUR 7,5 million to be authorised pursuant to Article 14. 2. A CCP’s capital, including retained earnings and reserves, shall be proportionate to the risk stemming from the activities of the CCP. It shall at all times be sufficient to ensure an orderly winding-down or restructuring of the activities over an appropriate time span and an adequate protection of the CCP against credit, counterparty, market, operational, legal and business risks which are not already covered by specific financial resources as referred to in Articles 41 to 44. 3. In order to ensure consistent application of this Article, EBA shall, in close cooperation with the ESCB and after consulting ESMA, develop draft regulatory technical standards specifying requirements regarding the capital, retained earnings and reserves of a CCP referred to in paragraph 2. EBA 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 1093/2010.
Article 17 Procedure for granting and refusing authorisation
1. The applicant CCP shall submit an application for authorisation to the competent authority of the Member State where it is established. 2. The applicant CCP shall provide all information necessary to satisfy the competent authority that the applicant CCP has established, at the time of authorisation, all the necessary arrangements to meet the requirements laid down in this Regulation. The competent authority shall immediately transmit all the information received from the applicant CCP to ESMA and the college referred to in Article 18(1). 3. Within 30 working days of receipt of the application, the competent authority shall assess whether the application is complete. If the application is not complete, the competent authority shall set a deadline by which the applicant CCP has to provide additional information. After assessing that an application is complete, the competent authority shall notify the applicant CCP and the members of the college established in accordance with Article 18(1) and ESMA accordingly. 4. The competent authority shall grant authorisation only where it is fully satisfied that the applicant CCP complies with all the requirements laid down in this Regulation and that the CCP is notified as a system pursuant to Directive 98/26/EC. The competent authority shall duly consider the opinion of the college reached in accordance with Article 19. Where the CCP’s competent authority does not agree with a positive opinion of the college, its decision shall contain full reasons and an explanation of any significant deviation from that positive opinion. The CCP shall not be authorised where all the members of the college, excluding the authorities of the Member State where the CCP is established, reach a joint opinion by mutual agreement, pursuant to Article 19(1), that the CCP not be authorised. That opinion shall state in writing the full and detailed reasons why the college consider that the requirements laid down in this Regulation or other Union law are not met. Where a joint opinion by mutual agreement as referred to in the third subparagraph has not been reached and a majority of two-thirds of the college have expressed a negative opinion, any of the competent authorities concerned, based on that majority of two-thirds of the college, may, within 30 calendar days of the adoption of that negative opinion, refer the matter to ESMA in accordance with Article 19 of Regulation (EU) No 1095/2010. The referral decision shall state in writing the full and detailed reasons why the relevant members of the college consider that the requirements laid down in this Regulation or other parts of Union law are not met. In that case the CCP’s competent authority shall defer its decision on authorisation and await any decision on authorisation that ESMA may take in accordance with Article 19(3) of Regulation (EU) No 1095/2010, The competent authority shall take its decision in conformity with ESMA’s decision. The matter shall not be referred to ESMA after the end of the 30-day period referred to in the fourth subparagraph. Where all the members of the college, excluding the authorities of the Member State where the CCP is established, reach a joint opinion by mutual agreement, pursuant to Article 19(1), that the CCP not be authorised, the CCP’s competent authority may refer the matter to ESMA in accordance with Article 19 of Regulation (EU) No 1095/2010. The competent authority of the Member State where the CCP is established shall transmit the decision to the other competent authorities concerned. 5. ESMA shall act in accordance with Article 17 of Regulation (EU) No 1095/2010 in the event that the CCP’s competent authority has not applied the provisions of this Regulation, or has applied them in a way which appears to be in breach of Union law. ESMA may investigate an alleged breach or non-application of Union law upon request from any member of the college or on its own initiative, after having informed the competent authority. 6. While performing their duties, any action taken by any member of the college shall not, directly or indirectly, discriminate against any Member State or group of Member States as a venue for clearing services in any currency. 7. Within six months of the submission of a complete application, the competent authority shall inform the applicant CCP in writing, with a fully reasoned explanation, whether authorisation has been granted or refused.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 17 Procedure for granting and refusing authorisation):
1. The applicant CCP shall submit an application for authorisation to the competent authority of the Member State where it is established. 2. The applicant CCP shall provide all information necessary to satisfy the competent authority that the applicant CCP has established, at the time of authorisation, all the necessary arrangements to meet the requirements laid down in this Regulation. The competent authority shall immediately transmit all the information received from the applicant CCP to ESMA and the college referred to in Article 18(1). 3. Within 30 working days of receipt of the application, the competent authority shall assess whether the application is complete. Where the application is not complete, the competent authority shall set a deadline by which the applicant CCP has to provide additional information. Upon receipt of such additional information, the competent authority shall immediately transmit it to ESMA and the college established in accordance with Article 18(1). After assessing that an application is complete, the competent authority shall notify the applicant CCP and the members of the college and ESMA accordingly. 4. The competent authority shall grant authorisation only where it is fully satisfied that the applicant CCP complies with all the requirements laid down in this Regulation and that the CCP is notified as a system pursuant to Directive 98/26/EC. The competent authority shall duly consider the opinion of the college reached in accordance with Article 19. Where the CCP’s competent authority does not agree with a positive opinion of the college, its decision shall contain full reasons and an explanation of any significant deviation from that positive opinion. The CCP shall not be authorised where all the members of the college, excluding the authorities of the Member State where the CCP is established, reach a joint opinion by mutual agreement, pursuant to Article 19(1), that the CCP not be authorised. That opinion shall state in writing the full and detailed reasons why the college consider that the requirements laid down in this Regulation or other Union law are not met. Where a joint opinion by mutual agreement as referred to in the third subparagraph has not been reached and a majority of two-thirds of the college have expressed a negative opinion, any of the competent authorities concerned, based on that majority of two-thirds of the college, may, within 30 calendar days of the adoption of that negative opinion, refer the matter to ESMA in accordance with Article 19 of Regulation (EU) No 1095/2010. The referral decision shall state in writing the full and detailed reasons why the relevant members of the college consider that the requirements laid down in this Regulation or other parts of Union law are not met. In that case the CCP’s competent authority shall defer its decision on authorisation and await any decision on authorisation that ESMA may take in accordance with Article 19(3) of Regulation (EU) No 1095/2010, The competent authority shall take its decision in conformity with ESMA’s decision. The matter shall not be referred to ESMA after the end of the 30-day period referred to in the fourth subparagraph. Where all the members of the college, excluding the authorities of the Member State where the CCP is established, reach a joint opinion by mutual agreement, pursuant to Article 19(1), that the CCP not be authorised, the CCP’s competent authority may refer the matter to ESMA in accordance with Article 19 of Regulation (EU) No 1095/2010. The competent authority of the Member State where the CCP is established shall transmit the decision to the other competent authorities concerned. 5. ESMA shall act in accordance with Article 17 of Regulation (EU) No 1095/2010 in the event that the CCP’s competent authority has not applied the provisions of this Regulation, or has applied them in a way which appears to be in breach of Union law. ESMA may investigate an alleged breach or non-application of Union law upon request from any member of the college or on its own initiative, after having informed the competent authority. 6. While performing their duties, any action taken by any member of the college shall not, directly or indirectly, discriminate against any Member State or group of Member States as a venue for clearing services in any currency. 7. Within six months of the submission of a complete application, the competent authority shall inform the applicant CCP in writing, with a fully reasoned explanation, whether authorisation has been granted or refused.
Article 18 College
1. Within 30 calendar days of the submission of a complete application in accordance with Article 17, the CCP’s competent authority shall establish, manage and chair a college to facilitate the exercise of the tasks referred to in Articles 15, 17, 49, 51 and 54. 2. The college shall consist of: (a) ESMA; (b) the CCP’s competent authority; (c) the competent authorities responsible for the supervision of the clearing members of the CCP that are established in the three Member States with the largest contributions to the default fund of the CCP referred to in Article 42 on an aggregate basis over a one-year period; (d) the competent authorities responsible for the supervision of trading venues served by the CCP; (e) the competent authorities supervising CCPs with which interoperability arrangements have been established; (f) the competent authorities supervising central securities depositories to which the CCP is linked; (g) the relevant members of the ESCB responsible for the oversight of the CCP and the relevant members of the ESCB responsible for the oversight of the CCPs with which interoperability arrangements have been established; (h) the central banks of issue of the most relevant Union currencies of the financial instruments cleared. 3. The competent authority of a Member State which is not a member of the college may request from the college any information relevant for the performance of its supervisory duties. 4. The college shall, without prejudice to the responsibilities of competent authorities under this Regulation, ensure: (a) the preparation of the opinion referred to in Article 19; (b) the exchange of information, including requests for information pursuant to Article 84; (c) agreement on the voluntary entrustment of tasks among its members; (d) the coordination of supervisory examination programmes based on a risk assessment of the CCP; and (e) the determination of procedures and contingency plans to address emergency situations, as referred to in Article 24. 5. The establishment and functioning of the college shall be based on a written agreement between all its members. That agreement shall determine the practical arrangements for the functioning of the college, including detailed rules on voting procedures as referred to in Article 19(3), and may determine tasks to be entrusted to the CCP’s competent authority or another member of the college. 6. In order to ensure the consistent and coherent functioning of colleges across the Union, ESMA shall develop draft regulatory technical standards specifying the conditions under which the Union currencies referred to in paragraph 2(h) are to be considered as the most relevant and the details of the practical arrangements referred to in paragraph 5. 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.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 18 College):
1. Within 30 calendar days of the submission of a complete application in accordance with Article 17, the CCP's competent authority shall establish, manage and chair a college to facilitate the exercise of the tasks referred to in Articles 15, 17, 30, 31, 32, 35, 49, 51 and 54. The college shall consist of: (b) the CCP’s competent authority; (c) the competent authorities responsible for the supervision of the clearing members of the CCP which are established in the three Member States with the largest contributions to the default fund of the CCP referred to in Article 42 of this Regulation on an aggregate basis over a one-year period, including, where relevant, the ECB in the framework of the tasks concerning the prudential supervision of credit institutions within the single supervisory mechanism conferred upon it in accordance with Council Regulation (EU) No 1024/2013 ( 14 ); (ca) the competent authorities responsible for the supervision of clearing members of the CCP, other than those referred to in point (c), subject to the consent of the CCP's competent authority. Those competent authorities shall request the consent of the CCP's competent authority to participate in the college, justifying the request based on their assessment of the impact that the CCP's financial distress could have on the financial stability of their respective Member State. Where the CCP's competent authority does not grant the request, it shall provide full and detailed reasons in writing; (d) the competent authorities responsible for the supervision of trading venues served by the CCP; (e) the competent authorities supervising CCPs with which interoperability arrangements have been established; (f) the competent authorities supervising central securities depositories to which the CCP is linked; (g) the relevant members of the ESCB responsible for the oversight of the CCP and the relevant members of the ESCB responsible for the oversight of the CCPs with which interoperability arrangements have been established; (h) the central banks of issue of the most relevant Union currencies of the financial instruments cleared; (i) the central banks of issue of the Union currencies of the financial instruments cleared or to be cleared by the CCP other than those referred to in point (h), subject to the consent of the CCP's competent authority. Those central banks of issue shall request the consent of the CCP's competent authority to participate in the college, justifying the request based on their assessment of the impact that the CCP's financial distress could have on their respective currency of issue. Where the CCP's competent authority does not grant the request, the CCP's competent authority shall provide full and detailed reasons in writing. The CCP's competent authority shall publish on its website a list of the members of the college. That list shall be updated by the CCP's competent authority without undue delay after any change to the composition of the college. The CCP's competent authority shall notify that list to ESMA within 30 calendar days of the college's establishment or change in its composition. Upon reception of the notification by the CCP's competent authority, ESMA shall publish on its website without undue delay the list of the members of that college. 3. The competent authority of a Member State which is not a member of the college may request from the college any information relevant for the performance of its supervisory duties. The college shall, without prejudice to the responsibilities of competent authorities under this Regulation, ensure: (a) the preparation of the opinion referred to in Article 19; (b) the exchange of information, including requests for information pursuant to Article 84; (c) agreement on the voluntary entrustment of tasks among its members; (d) the coordination of supervisory examination programmes based on a risk assessment of the CCP; and (e) the determination of procedures and contingency plans to address emergency situations, as referred to in Article 24. In order to facilitate the performance of the tasks assigned to colleges pursuant to the first subparagraph, members of the college referred to in paragraph 2 shall be entitled to contribute to the setting of the agenda of the college meetings, in particular by adding points to the agenda of a meeting. 5. The establishment and functioning of the college shall be based on a written agreement between all its members. That agreement shall determine the practical arrangements for the functioning of the college, including detailed rules on: (i) voting procedures as referred to in Article 19(3); (ii) the procedures for setting the agenda of college meetings; (iii) the frequency of the college meetings; (iv) the format and scope of the information to be provided by the CCP's competent authority to the college members, especially with regard to the information to be provided in accordance with Article 21(4); (v) the appropriate minimum timeframes for the assessment of the relevant documentation by the college members; (vi) the modalities of communication between college members; The agreement may also determine tasks to be entrusted to the CCP's competent authority or another member of the college. 6. In order to ensure the consistent and coherent functioning of colleges across the Union, ESMA shall, in cooperation with the ESCB, develop draft regulatory technical standards specifying the conditions under which the Union currencies referred to in point (h) of paragraph 2 are to be considered as the most relevant and the details of the practical arrangements referred to in paragraph 5. ESMA shall submit those draft regulatory technical standards to the Commission by 2 January 2021. 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.
Article 19 Opinion of the college
1. Within four months of the submission of a complete application by the CCP in accordance with Article 17, the CCP’s competent authority shall conduct a risk assessment of the CCP and submit a report to the college. Within 30 calendar days of receipt, and on the basis of the findings in, that report, the college shall reach a joint opinion determining whether the applicant CCP complies with all the requirements laid down in this Regulation. Without prejudice to the fourth subparagraph of Article 17(4) and if no joint opinion is reached in accordance with the second subparagraph, the college shall adopt a majority opinion within the same period. 2. ESMA shall facilitate the adoption of the joint opinion in accordance with its general coordination function under Article 31 of Regulation (EU) No 1095/2010. 3. A majority opinion of the college shall be adopted on the basis of a simple majority of its members. For colleges up to and including 12 members, a maximum of two college members belonging to the same Member State shall have a vote and each voting member shall have one vote. For colleges with more than 12 members, a maximum of three members belonging to the same Member State shall have a vote and each voting member shall have one vote. ESMA shall have no voting rights on the opinions of the college.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 19 Opinion of the college):
1. Within four months of the submission of a complete application by the CCP in accordance with Article 17, the CCP’s competent authority shall conduct a risk assessment of the CCP and submit a report to the college. Within 30 calendar days of receipt, and on the basis of the findings in, that report, the college shall reach a joint opinion determining whether the applicant CCP complies with all the requirements laid down in this Regulation. Without prejudice to the fourth subparagraph of Article 17(4) and if no joint opinion is reached in accordance with the second subparagraph, the college shall adopt a majority opinion within the same period. 1a. Where the college gives an opinion pursuant to this Regulation, at the request of any member of the college and upon adoption by a majority of the college in accordance with paragraph 3 of this Article, that opinion may include, in addition to the determination of whether the CCP complies with this Regulation, recommendations aimed at addressing shortcomings in the CCP's risk management and increasing its resilience. Where the college may give an opinion, any central bank of issue, which is a member of the college pursuant to points (h) and (i) of Article 18(2), may adopt recommendations relating to the currency it issues. 2. ESMA shall facilitate the adoption of the joint opinion in accordance with its general coordination function under Article 31 of Regulation (EU) No 1095/2010. 3. A majority opinion of the college shall be adopted on the basis of a simple majority of its members. For colleges up to and including 12 members, a maximum of two college members belonging to the same Member State shall have a vote and each voting member, shall have one vote. For colleges with more than 12 members, a maximum of three members belonging to the same Member State shall have a vote and each voting member shall have one vote. Where the ECB is a member of the college pursuant to points (c) and (h) of Article 18(2), it shall have two votes. The members of the college referred to in points (a), (ca) and (i) of Article 18(2) shall have no voting rights on the opinions of the college. 4. Without prejudice to the procedure prescribed in Article 17, the competent authority shall duly consider the opinion of the college reached in accordance with paragraph 1 of this Article, including any possible recommendations aimed at addressing shortcomings in the CCP's risk management and increasing its resilience. Where the CCP's competent authority does not agree with an opinion of the college, including any recommendations contained therein aimed at addressing shortcomings in the CCP's risk management procedures and increasing its resilience, its decision shall contain full reasons and an explanation of any significant deviation from that opinion or recommendations.
Article 20 Withdrawal of authorisation
1. Without prejudice to Article 22(3), the CCP’s competent authority shall withdraw authorisation where the CCP: (a) has not made use of the authorisation within 12 months, expressly renounces the authorisation or has provided no services or performed no activity for the preceding six months; (b) has obtained authorisation by making false statements or by any other irregular means; (c) is no longer in compliance with the conditions under which authorisation was granted and has not taken the remedial action requested by the CCP’s competent authority within a set time frame; (d) has seriously and systematically infringed any of the requirements laid down in this Regulation. 2. Where the CCP’s competent authority considers that one of the circumstances referred to in paragraph 1 applies, it shall, within five working days, notify ESMA and the members of college accordingly. 3. The CCP’s competent authority shall consult the members of the college on the necessity to withdraw the authorisation of the CCP, except where a decision is required urgently. 4. Any member of the college may, at any time, request that the CCP’s competent authority examine whether the CCP remains in compliance with the conditions under which authorisation was granted. 5. The CCP’s competent authority may limit the withdrawal to a particular service, activity, or class of financial instruments. 6. The CCP’s competent authority shall send ESMA and the members of the college its fully reasoned decision, which shall take into account the reservations of the members of the college. 7. The decision on the withdrawal of authorisation shall take effect throughout the Union.
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 20 Withdrawal of authorisation):
2. Where the CCP’s competent authority withdraws the authorisation of the CCP pursuant to paragraph 1, it may limit such withdrawal of authorisation to a particular clearing service or activity in one or more classes of derivatives, securities, other financial instruments or non-financial instruments. 3. Before the CCP’s competent authority takes a decision to withdraw the authorisation of the CCP in full or in part, including for one or more clearing services or activities in one or more classes of derivatives, securities, other financial instruments or non-financial instruments under paragraph 1, it shall, in accordance with Article 17b, request the opinion of ESMA and the college referred to in Article 18 on the necessity of withdrawing the authorisation, in full or in part, of the CCP, except where a decision is required urgently. 4. ESMA or any member of the college referred to in Article 18 may, at any time, request that the CCP’s competent authority examine whether the CCP remains in compliance with the conditions under which the authorisation was granted. 5. Where the CCP’s competent authority takes a decision to withdraw the authorisation of the CCP in full or in part, including for one or more clearing services or activities in one or more classes of derivatives, securities, other financial instruments or non-financial instruments, that decision shall take effect throughout the Union and the CCP’s competent authority shall inform the CCP, via the central database, without undue delay.
Article 21 Review and evaluation
1. Without prejudice to the role of the college, the competent authorities referred to in Article 22 shall review the arrangements, strategies, processes and mechanisms implemented by CCPs to comply with this Regulation and evaluate the risks to which CCPs are, or might be, exposed. 2. The review and evaluation referred to in paragraph 1 shall cover all the requirements on CCPs laid down in this Regulation. 3. The competent authorities shall establish the frequency and depth of the review and evaluation referred to in paragraph 1 having regard to the size, systemic importance, nature, scale and complexity of the activities of the CCPs concerned. The review and evaluation shall be updated at least on an annual basis. The CCPs shall be subject to on-site inspections. 4. The competent authorities shall regularly, and at least annually, inform the college of the results of the review and evaluation as referred to in paragraph 1, including any remedial action taken or penalty imposed. 5. The competent authorities shall require any CCP that does not meet the requirements laid down in this Regulation to take the necessary action or steps at an early stage to address the situation. 6. ESMA shall fulfil a coordination role between competent authorities and across colleges with a view to building a common supervisory culture and consistent supervisory practices, ensuring uniform procedures and consistent approaches, and strengthening consistency in supervisory outcomes. For the purposes of the first subparagraph, ESMA shall, at least annually: (a) conduct a peer review analysis of the supervisory activities of all competent authorities in relation to the authorisation and the supervision of CCPs in accordance with Article 30 of Regulation (EU) No 1095/2010; and (b) initiate and coordinate Union-wide assessments of the resilience of CCPs to adverse market developments in accordance with Article 32(2) of Regulation (EU) No 1095/2010. Where an assessment referred to in point (b) of the second subparagraph exposes shortcomings in the resilience of one or more CCPs, ESMA shall issue the necessary recommendations pursuant to Article 16 of Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 21 Review and evaluation):
1. Without prejudice to the role of the college, the competent authorities referred to in Article 22 shall review the arrangements, strategies, processes and mechanisms implemented by CCPs to comply with this Regulation and evaluate the risks, including at least financial and operational risks, to which CCPs are, or might be, exposed. 2. The review and evaluation referred to in paragraph 1 shall cover all the requirements on CCPs laid down in this Regulation. 3. The competent authorities shall establish the frequency and depth of the review and evaluation referred to in paragraph 1, having particular regard to the size, systemic importance, nature, scale, complexity of the activities and interconnectedness with other financial market infrastructures of the CCPs concerned. The review and evaluation shall be updated at least on an annual basis. CCPs shall be subject to on-site inspections. Upon ESMA's request, competent authorities may invite ESMA staff to participate in on-site inspections. The competent authority may forward to ESMA any information received from the CCPs during or in relation to on-site inspections. 4. The competent authorities shall regularly, and at least annually, inform the college of the results of the review and evaluation as referred to in paragraph 1, including any remedial action taken or penalty imposed. 5. The competent authorities shall require any CCP that does not meet the requirements laid down in this Regulation to take the necessary action or steps at an early stage to address the situation. 6. By 2 January 2021, in order to ensure consistency in the format, frequency and depth of the review carried out by the national competent authorities in accordance with this Article, ESMA shall issue guidelines in accordance with Article 16 of Regulation (EU) No 1095/2010 to specify further, in a manner that is appropriate to the size, the structure and the internal organisation of CCPs and the nature, scope and complexity of their activities, the common procedures and methodologies for the supervisory review and evaluation process referred to in paragraphs 1 and 2 and in the first subparagraph of paragraph 3 of this Article.
Article 22 Competent authority
1. Each Member State shall designate the competent authority responsible for carrying out the duties resulting from this Regulation for the authorisation and supervision of CCPs established in its territory and shall inform the Commission and ESMA thereof. Where a Member State designates more than one competent authority, it shall clearly determine the respective roles and shall designate a single authority to be responsible for coordinating cooperation and the exchange of information with the Commission, ESMA, other Member States’ competent authorities, EBA and the relevant members of the ESCB, in accordance with Articles 23, 24, 83 and 84. 2. Each Member State shall ensure that the competent authority has the supervisory and investigatory powers necessary for the exercise of its functions. 3. Each Member State shall ensure that appropriate administrative measures, in conformity with national law, can be taken or imposed against the natural or legal persons responsible for non-compliance with this Regulation. Those measures shall be effective, proportionate and dissuasive and may include requests for remedial action within a set time frame. 4. ESMA shall publish on its website a list of the competent authorities designated in accordance with paragraph 1.
Article 23 Cooperation between authorities
1. Competent authorities shall cooperate closely with each other, with ESMA and, if necessary, with the ESCB. 2. Competent authorities shall, in the exercise of their general duties, duly consider the potential impact of their decisions on the stability of the financial system in all other Member States concerned, in particular the emergency situations referred to in Article 24, based on the available information at the time.
Article 24 Emergency situations
The CCP’s competent authority or any other authority shall inform ESMA, the college, the relevant members of the ESCB and other relevant authorities without undue delay of any emergency situation relating to a CCP, including developments in financial markets, which may have an adverse effect on market liquidity and the stability of the financial system in any of the Member States where the CCP or one of its clearing members are established.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 24 Emergency situations):
The CCP's competent authority or any other relevant authority shall inform ESMA, the college, the relevant members of the ESCB and other relevant authorities without undue delay of any emergency situation relating to a CCP, including developments in financial markets, which may have an adverse effect on market liquidity, the transmission of monetary policy, the smooth operation of payment systems or the stability of the financial system in any of the Member States where the CCP or one of its clearing members are established.