Beyond Brexit

European Systemic Risk Board

Central clearing framework review - ESRB publishes response to European Commission’s targeted consultation - 22 March 2022

The European Systemic Risk Board (ESRB) has published its response to the European Commission’s (the Commission’s) targeted consultation on the review of the EU central clearing framework. It follows the ESRB’s response to the European Securities and Markets Authority’s (ESMA’s) December 2021 consultation on determining the degree of systemic importance of LCH Ltd and ICE Clear Europe and some of their clearing services. The ESRB welcomes the fact that the Commission’s plans reflect the proposals in the ESRB’s response to ESMA.

Key points made by the ESRB in its response include:

• provided the Commission’s forthcoming proposals succeed in addressing the risks to financial stability identified, the ESRB would be in favour of allowing the two UK Tier 2 central counterparties (CCPs) (i.e. LCH Ltd and ICE Clear Europe) to continue offering clearing services in the EU beyond the end of the temporary equivalence period on 30 June 2025;
• the Commission’s proposals should be embedded in a framework that applies to any other CCP that might be classified as Tier 2 in the future; and
• macroprudential measures, aimed at aligning the incentives of all market participants, should be seen as complementary to voluntary, market-based solutions.

The ESRB also notes that the Commission plans to put forward proposals in relation to building central clearing capacity within the EU and strengthening the EU’s supervisory framework for this. It states that, for these considerations to be turned into proposals, the Commission would first need to conduct a cost-benefit analysis to test their viability, particularly as any exposure targets or limits would need to be calibrated carefully.

ESRB response to the European Commission targeted consultation on the review of the central clearing framework in the EU (ESRB/2022/0047)