Regulation (EU) No 648/2012 of the European Parliament and of the Council (4) requires standardised OTC derivatives contracts to be cleared through a central counterparty (CCP) in line with similar requirements in other G20 countries. That Regulation also introduced strict prudential, organisational and business conduct requirements for CCPs and established arrangements for their prudential supervision in order to minimise risks to users of CCPs and underpin financial stability.
(2)
Since the adoption of Regulation (EU) No 648/2012, the volume of CCP activity in the Union and globally has grown rapidly in scale and in scope. The expansion in CCP activity is set to continue in the coming years with the introduction of additional clearing obligations and the rise in voluntary clearing by counterparties not subject to a clearing obligation. Regulation (EU) 2019/834 of the European Parliament and of the Council (5) amends Regulation (EU) No 648/2012 in a targeted manner, improves its effectiveness and proportionality, creates further incentives for CCPs to offer central clearing of derivatives to counterparties, and facilitates access to clearing for small financial and non-financial counterparties. Deeper and more integrated capital markets resulting from the Capital Markets Union (CMU) will further increase the need for cross-border clearing in the Union, thus further increasing the importance and the interconnectedness of CCPs within the financial system.
(3)
The number of CCPs currently established in the Union and authorised under Regulation (EU) No 648/2012 remains relatively limited, standing at 16 in August 2019. 33 third-country CCPs have been recognised by the European Securities and Markets Authority (ESMA) under that Regulation, allowing them to offer their services to clearing members and trading venues established in the Union. Clearing markets are well integrated across the Union but highly concentrated in certain asset classes and highly interconnected. The concentration of risk makes the failure of a CCP a low-probability but a potentially extremely high-impact event. In line with the G20 consensus, the Commission adopted a proposal for a Regulation on recovery and resolution of CCPs in November 2016 to ensure that authorities are appropriately prepared to address a failing CCP, safeguarding financial stability and limiting taxpayer costs.
(4)
Notwithstanding that legislative proposal and in light of the growing size, complexity and cross-border dimension of clearing in the Union and globally, the supervisory arrangements for Union and third-country CCPs should be revisited. By addressing identified problems at an early stage and establishing clear and coherent supervisory arrangements both for Union and third-country CCPs, the overall stability of the Union financial system would be reinforced and the potential risk of a CCP failure should be lowered even further.
(5)
In light of those considerations, the Commission adopted a Communication on 4 May 2017 on responding to challenges for critical financial market infrastructures and further developing the CMU, stating that further changes to Regulation (EU) No 648/2012 are necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the CMU.
(6)
The supervisory arrangements under Regulation (EU) No 648/2012 rely mainly on the home-country authority. CCPs established in the Union are currently authorised and supervised by competent authorities of the Member States in cooperation with colleges comprising of national supervisors, ESMA, relevant members of the European System of Central Banks (ESCB), and other relevant authorities. The colleges rely on coordination and information sharing by the CCP's competent authority which bears the responsibility of enforcing the provisions laid out in Regulation (EU) No 648/2012. Diverging supervisory practices for CCPs across the Union can create risks of regulatory and supervisory arbitrage, jeopardising financial stability and resulting in unhealthy competition. The Commission has drawn attention to those emerging risks and the need for greater supervisory convergence in its Communication on CMU of 14 September 2016 and in the public consultation on the operations of the European Supervisory Authorities (ESAs). Within the already existing general remit of ESMA to 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, ESMA should in particular focus on supervisory areas which have a cross-border dimension or a possible cross-border impact. ESMA should determine the supervisory areas which have a cross-border dimension or a possible cross-border impact based on its expertise and experience in the application of Regulation (EU) No 648/2012.
(7)
In view of the global nature of financial markets and of the need to address inconsistencies in the supervision of Union and third-country CCPs, ESMA's ability to promote convergence in the supervision of CCPs should be enhanced. For that purpose, a permanent internal committee for CCPs (‘CCP Supervisory Committee’) should be created to handle tasks related to CCPs authorised within the Union and third-country CCPs. The establishment, the functions and composition of the CCP Supervisory Committee set up within ESMA should be a unique solution to bring together expertise in the field of CCP supervision and should not constitute a precedent for the ESAs.
(8)
The CCP Supervisory Committee should be responsible for specific tasks assigned to it pursuant to Regulation (EU) No 648/2012 to ensure the proper functioning of the internal market as well as the financial stability of the Union and its Member States.
(9)
In order to include the full range of practical experience and operational expertise regarding the supervision of CCPs, the CCP Supervisory Committee should be composed of a Chair, independent members, and the competent authorities of Member States with an authorised CCP. Where the CCP Supervisory Committee convenes in relation to authorised CCPs, central banks of issue of the Union currencies of the financial instruments cleared by those CCPs should be able to, on a voluntary basis, participate in the CCP Supervisory Committee in relation to the areas of Union-wide assessments of the resilience of CCPs to adverse market developments and relevant market developments, to facilitate access to information that could be relevant for carrying out their tasks. Where the CCP Supervisory Committee convenes in relation to third-country CCPs, central banks of issue of all Union currencies of the financial instruments cleared or to be cleared by the respective third-country CCP should be able to, on a voluntary basis, participate in the CCP Supervisory Committee for preparation of decisions in relation to third-country CCPs that are systemically important or likely to become systemically important for the financial stability of the Union or of one or more of its Member States (Tier 2 CCPs). Central banks of issue should be non-voting members of the CCP Supervisory Committee. The Chair of the CCP Supervisory Committee should be able to invite members of colleges as observers to ensure that the views of other relevant authorities are taken into account by the CCP Supervisory Committee.
(10)
To provide for an appropriate level of expertise and accountability, the Chair and the independent members of the CCP Supervisory Committee should be appointed by ESMA's Board of Supervisors (‘the Board of Supervisors’) on the basis of merit, knowledge of clearing, post-trading, prudential supervision, and financial matters, as well as experience relevant to the supervision and regulation of CCPs, following an open selection procedure organised and managed by the Board of Supervisors, assisted by the Commission, which should respect the principle of gender balance. Before the appointment of the Chair and the independent members of the CCP Supervisory Committee, and up to one month after their selection by the Board of Supervisors, the European Parliament should, after having heard the persons selected, approve or reject their designation. Only selected candidates approved by the European Parliament may be appointed by the Board of Supervisors.
(11)
In order to ensure transparency and democratic control, as well as to safeguard the rights of the Union institutions, the Chair and the independent members of the CCP Supervisory Committee should be accountable to the European Parliament and to the Council for any decisions taken on the basis of Regulation (EU) No 648/2012.
(12)
The Chair and the independent members of the CCP Supervisory Committee should act independently and objectively in the interest of the Union. They should ensure that appropriate account is taken of the proper functioning of the internal market as well as financial stability in each Member State, with or without authorised CCPs, and in the Union.
(13)
In order to ensure an appropriate, effective and swift decision-making process in the CCP Supervisory Committee, the Chair, the independent members, and the competent authorities of the Member States with an authorised CCP should have voting rights. The representatives of the central bank(s), as well as observers, should have no voting rights. The CCP Supervisory Committee should take its decisions by a simple majority of its members, each voting member should have one vote and the Chair should have a casting vote in the event of a tie. The final decision-making power should remain with the Board of Supervisors.
(14)
In order to ensure a coherent and consistent supervisory approach within the Union, the CCP Supervisory Committee should be responsible for preparing certain specific decisions and carrying out certain tasks which are entrusted to ESMA. Such responsibilities strengthen ESMA's coordination role between competent authorities and across colleges with a view to building a common supervisory culture and consistent supervisory practices, especially with regard to supervisory areas which have a cross-border dimension or a possible cross-border impact. In that respect, such relevant supervisory activities and decisions could include in particular supervisory areas where diverging supervisory practices can create risks of regulatory and supervisory arbitrage or jeopardise financial stability. ESMA should also be informed of all opinions adopted by colleges provided for in Regulation (EU) No 648/2012, including the basis of decision-making which the opinion of the college relates to and any recommendations adhered to in those opinions by the college.
(15)
In addition, a mandatory ex ante exchange and discussion regarding draft decisions of competent authorities of CCPs on certain supervisory areas of particular importance should take place within the CCP Supervisory Committee. Moreover, on a voluntary basis and on the initiative of the competent authorities of CCPs, all draft decisions should be able to be subject to an exchange on an ex ante basis. ESMA should not provide an opinion where, as a result of the outcome of the discussion within the CCP Supervisory Committee, no diverging views have been identified. The power for ESMA to provide opinions should ensure that the CCP's competent authority receives an additional reaction regarding draft decisions by a group of supervisors specialised and experienced in the supervision of CCPs. Such opinions by ESMA should not have any implication for the responsibility of the CCP's competent authority to take the final decision, which means that the final content of the respective decision would remain at the full discretion of the CCP's competent authority. Where the competent authority does not agree with an opinion of ESMA, it should provide comments to ESMA on any significant deviation from that opinion. The competent authority should be able to provide comments before, at the same time as, or after adopting a decision. However, where the competent authority provides comments after adopting a decision, it should do so without undue delay. The opinion provided by ESMA should not interfere with the power of colleges to determine the content of their opinion at their own discretion, where applicable.
(16)
Where supervisory activities in relation to authorised CCPs show a lack of convergence and coherence in the application of Regulation (EU) No 648/2012, including on the basis of mandatory and voluntary consultation of ESMA by competent authorities and the discussions in the CCP Supervisory Committee, ESMA should promote the necessary degree of convergence and consistency, including by issuing guidelines, recommendations or opinions. To facilitate that process, the CCP Supervisory Committee should be able to request that the Board of Supervisors consider the adoption of guidelines, recommendations and opinions by ESMA. The CCP Supervisory Committee should also be able to submit opinions to the Board of Supervisors regarding decisions to be taken by ESMA concerning the tasks and activities of CCP competent authorities. The CCP Supervisory Committee should provide, for instance, opinions on draft technical standards or draft guidelines developed by ESMA in the area of authorisation and supervision of CCPs.
(17)
To provide effective supervision in relation to third-country CCPs, the CCP Supervisory Committee should prepare complete draft decisions for approval by the Board of Supervisors and carry out the tasks entrusted to ESMA with regard to the provisions concerning the recognition and supervision of third-country CCPs laid down in Regulation (EU) No 648/2012. As cooperation and information are essential, the CCP Supervisory Committee should, when it convenes in relation to third-country CCPs, share with the third-country CCP college relevant information, including the complete draft decisions it submits to the Board of Supervisors, final decisions adopted by the Board of Supervisors, agendas and minutes of the meetings of the CCP Supervisory Committee and applications for recognition by CCPs established in a third country.
(18)
In order to ensure the effective performance of its tasks, the CCP Supervisory Committee should be supported by dedicated staff from ESMA to prepare its meetings, prepare the analyses necessary to carry out its tasks and support it in its international cooperation.
(19)
Central banks of issue should be involved in the preparation of decisions by the CCP Supervisory Committee in relation to the classification of third-country CCPs according to their systemic importance and the supervision of Tier 2 CCPs in order to ensure the proper exercise of their tasks related to the monetary policy and the smooth operation of payment systems. As decisions by ESMA in relation to Tier 2 CCPs on margin requirements, liquidity risk control, collateral, settlement and approval of interoperability arrangements could be of particular relevance for central banks' tasks, the CCP Supervisory Committee should consult central banks of issue of all Union currencies of the financial instruments cleared or to be cleared by third-country CCPs on the basis of a ‘comply or explain’ mechanism.
(20)
The Board of Supervisors should adopt the draft decisions submitted by the CCP Supervisory Committee, acting in accordance with the decision-making process set out in Regulation (EU) No 1095/2010 of the European Parliament and of the Council (6). In order to ensure an effective and swift decision-making process, certain decisions which do not relate to the recognition, classification of third-country CCPs, specific requirements imposed on Tier 2 CCPs, review or withdrawal of recognition or to the essential elements of the ongoing supervision of third-country CCPs, where consultation with the central banks of issue is required, should be adopted by the Board of Supervisors within three working days.
(21)
To further promote convergence on supervisory decisions, ESMA should receive new mandates to develop draft regulatory technical standards on the extension of activities and services and in order to specify the conditions under which changes to the models and parameters are considered to be significant. Furthermore, ESMA should issue necessary guidelines to specify further the common procedures for the supervisory review and evaluation process in relation to CCPs.
(22)
The functioning of the colleges set up for Union CCPs is crucial for effective supervision of CCPs. In order to ensure Union-wide coherence of the processes within colleges, the written agreements determining the practical arrangements for the functioning of colleges should be refined and more standardised. To further promote the role of the members of colleges, they should be entitled to contribute to the agenda-setting of college meetings. To increase the transparency of colleges, their composition should be public. In order to avoid any conflicts of interest, Council Regulation (EU) No 1024/2013 (7) stipulates that the supervisory tasks of the ECB and tasks relating to the monetary policy and any other of its tasks should be carried out in full separation. That specific separation of responsibilities of the ECB should be acknowledged. Accordingly, where the ECB is a member of a college set up for a Union CCP due to its function as a competent authority of a clearing member within the Single Supervisory Mechanism as well as due to its function as a central bank of issue representing the Eurosystem, the ECB should be vested with two votes in the college.
(23)
The number of central banks of issue and competent authorities responsible for the supervision of clearing members of the Member States represented in colleges set up for Union CCPs is currently limited. To facilitate access to information by a broader range of central banks of issue and competent authorities of other Member States, whose financial stability could be impacted by a CCP's financial distress, additional central banks of issue and competent authorities should be able to participate in colleges on request. To promote consistency in the supervision of CCPs across the Union, the Chair, or an independent member, of the CCP Supervisory Committee should also participate in colleges. In order to ensure an appropriate, effective and swift decision-making process, central banks of issue and competent authorities, which are participating on the basis of a request, as well as the Chair, or the independent member, of the CCP Supervisory Committee should be non-voting.
(24)
In order to strengthen their role, colleges should be able to provide opinions on additional supervisory areas of fundamental impact on a CCP's business operations, including on the assessment of shareholders and members with qualifying holdings of CCPs and the outsourcing of operational functions, services or activities. In addition, following a request by any member of the college, the college should be able to include in its opinions recommendations aimed at addressing shortcomings in a CCP's risk management and increasing its resilience, subject to a majority decision of the college. The vote of the college on the inclusion of such recommendations should be carried out separately from the vote of the college on the opinion. In order to reinforce the impact of college opinions and recommendations, the competent authorities should duly consider them and provide reasoning in cases of significant deviation from those opinions or recommendations.
(25)
The supervisory arrangements in Regulation (EU) No 648/2012 for third-country CCPs offering clearing services within the Union also require revision. Access to information, the ability to conduct on-site inspections and investigations, the possibility to share information on third-country CCPs between relevant Union and Member States' authorities as well as the possibility to enforce ESMA's decisions over third-country CCPs need to be improved to avoid important financial stability implications for Union entities. There is also a risk that changes to third-country CCP rules or to a third-country regulatory framework cannot be taken into account and could negatively affect the regulatory or supervisory outcomes leading to an unlevel playing field between Union and third-country CCPs.
(26)
A significant amount of financial instruments denominated in Union currencies are cleared by third-country CCPs. This implies significant challenges for Union and Member States' authorities in safeguarding financial stability.
(27)
As part of its commitment to integrated financial markets, the Commission should continue to determine, by way of equivalence decisions, that the legal and supervisory frameworks of third countries fulfil the requirements of Regulation (EU) No 648/2012. In order to enhance the implementation of the current equivalence regime in relation to CCPs, the Commission should be able to, if necessary, specify further the criteria for assessing the equivalence of third-country CCP regimes. It is also necessary to empower ESMA with the monitoring of regulatory and supervisory developments in those third-country CCP regimes that have been deemed equivalent by the Commission. This is in order to ensure that the equivalence criteria and any specific conditions set for their use continue to be satisfied by third countries. ESMA should report its findings to the European Parliament, the Council, the Commission and the third-country CCP college on a confidential basis.
(28)
The Commission is currently able to amend, suspend, review or revoke an equivalence decision at any time, in particular where developments occur in a third country which materially affect the elements assessed in accordance with the equivalence requirements under Regulation (EU) No 648/2012. Where a third country's relevant authorities no longer cooperate with ESMA or other Union supervisors in good faith or fail to comply on a continuous basis with the applicable equivalence requirements, the Commission is also able to, inter alia, put those authorities on notice or publish a specific recommendation. Where the Commission decides at any time to revoke an equivalence decision, it is able to delay the date of application of that decision in order to address the risks to financial stability or of market disruptions. In addition to those powers currently available, the Commission should also be able to set specific conditions to ensure that the equivalence criteria continue to be fulfilled on an ongoing basis by the third country to which an equivalence decision relates. The Commission should also be able to set conditions ensuring that ESMA is able to effectively exercise its responsibilities in relation to third-country CCPs recognised under Regulation (EU) No 648/2012 or in relation to monitoring of regulatory and supervisory developments in third countries that are of relevance for adopted equivalence decisions.
(29)
In view of the growing cross-border dimension of CCPs and of the interlinkages in the Union financial system, it is necessary to improve the ability of the Union to identify, monitor and mitigate the potential risks related to third-country CCPs. The role of ESMA should therefore be enhanced to effectively supervise third-country CCPs that apply for recognition to provide clearing services in the Union. The involvement of the Union central banks of issue in the recognition, supervision, review of recognition and withdrawal of recognition of third-country CCPs that are active in the currency they issue should also be improved. Therefore, Union central banks of issue should be consulted on certain aspects affecting their monetary policy responsibilities in relation to financial instruments denominated in Union currencies which are cleared or to be cleared by CCPs located outside the Union.
(30)
Once the Commission has determined the legal and supervisory framework of a third country as equivalent to the Union framework, the process to recognise CCPs from that third country should take into account the risks those CCPs present for the financial stability of the Union or of one or more of its Member States.
(31)
When considering the application of a third-country CCP for recognition, ESMA should assess the degree of systemic risk that the CCP presents to the financial stability of the Union or of one or more of its Member States on the basis of objective and transparent criteria set out in this Regulation. Those criteria should contribute to the overall assessment. Individually, none of those criteria should be considered determinative on its own. Where assessing the risk profile of a third-country CCP, ESMA should consider all risks, including operational risks, such as fraud, criminal activity, IT- and cyber-risk. A Commission delegated act should specify further those criteria. In specifying those criteria, the nature of the transactions cleared by the CCP, including their complexity, price volatility and average maturity, as well as the transparency and liquidity of the markets concerned and the degree to which the CCP's clearing activities are denominated in euro or other Union currencies should be considered. In that regard, specific features concerning certain agricultural derivative contracts listed and executed on regulated markets in third countries, which relate to markets that largely serve domestic non-financial counterparties in that third country which manage their commercial risks through those contracts, may pose a negligible risk to clearing members and trading venues in the Union as they have a low degree of systemic interconnectedness with the rest of the financial system. Where a framework for the recovery and resolution of CCPs is in force in a third country, that should also be taken into account by ESMA in its analysis of the degree of systemic risk that the applicant CCP established in that third country presents to the financial stability of the Union or of one or more of its Member States.
(32)
CCPs that are not systemically important to the financial stability of the Union or of one or more of its Member States should be considered as ‘Tier 1’ CCPs. CCPs that are systemically important or likely to become systemically important for the financial stability of the Union or of one or more of its Member States should be considered as ‘Tier 2’ CCPs. Where ESMA determines that a third-country CCP is not systemically important for the financial stability of the Union or of one or more of its Member States, the existing recognition conditions under Regulation (EU) No 648/2012 should apply to that CCP. Where ESMA determines that a third-country CCP is systemically important, specific requirements should be imposed on that CCP. ESMA should only recognise such a CCP where that CCP complies with those requirements. Those requirements should include certain prudential requirements set out in Regulation (EU) No 648/2012 that aim to increase the safety and efficiency of a CCP. ESMA should be directly responsible for ensuring that a systemically important third-country CCP complies with those requirements. Related requirements should also enable ESMA to carry out full and effective supervision of that CCP under Regulation (EU) No 648/2012.
(33)
In order to ensure the proper involvement of central bank(s) of issue of all Union currencies of the financial instruments cleared or to be cleared by third-country CCPs in the recognition of Tier 2 CCPs, ESMA, when recognising such CCPs, should take into account their compliance with specific requirements that those central banks of issue may have imposed in the carrying out of their monetary policy tasks. Those requirements should relate to the submission of information to the central bank(s) of issue upon its reasoned request, the cooperation of CCPs with the central bank(s) of issue in the context of the assessment of the CCP's resilience to adverse market developments carried out by ESMA, the opening of an overnight deposit account with the central bank(s) of issue and requirements in exceptional situations that the central bank(s) of issue considers necessary. The access criteria and requirements of central bank(s) of issue for opening an overnight deposit account should not amount to an obligation to relocate all or part of the clearing services of the CCP.
(34)
As regards requirements that central bank(s) of issue might be able to impose in exceptional situations, the transmission of monetary policy or the smooth operation of payment systems might be affected by developments in centrally cleared markets in situations such as stresses in the markets (especially the money and repurchase markets) on which the CCP relies to obtain liquidity, situations where CCPs' operations contribute to the drying up of liquidity in the market, or serious malfunctions of payment or settlement arrangements that impede the CCP's ability to meet its payment obligations or increase its liquidity needs. The determination of the existence of such exceptional situations depends solely on monetary policy considerations and need not coincide with any emergency situation relating to the CCP. In such situations, the prudential framework might therefore not fully mitigate the ensuing risks, in which case direct action by the central bank(s) of issue to ensure the transmission of monetary policy or the smooth operation of payment systems might be necessary.
(35)
In such exceptional situations, central banks of issue might need to impose, to the extent allowed under their respective institutional frameworks, temporary requirements relating to liquidity risks, settlement arrangements, margin requirements, collateral or interoperability arrangements. Non-compliance with such temporary requirements might trigger the withdrawal by ESMA of the recognition of the Tier 2 CCP. Those requirements could include, in particular, temporary enhancements to the liquidity risk management of a Tier 2 CCP, such as increase in liquidity buffer, increase in the frequency of the collection of intraday margins, and limits to cross-currency exposures, or specific arrangements for depositing cash and settling payments in the currency of the central bank. The requirements should not extend to other areas of prudential supervision or amount automatically to withdrawal of recognition. Furthermore, the application of those requirements should only be a condition for recognition for a limited period of time of up to six months with a potential extension once to an additional period not exceeding six months. After expiration of this additional period, the application of those requirements should cease to be a condition for the recognition of a Tier 2 CCP. Nevertheless, in the context of a new or different exceptional situation, central banks of issue should not be prevented from imposing temporary requirements, the application of which would be a condition for the recognition of a Tier 2 CCP under Regulation (EU) No 648/2012.
(36)
Before the application of the requirements or before a possible extension, a central bank of issue should provide ESMA, the other central banks of issue of all Union currencies of the financial instruments cleared or to be cleared, and the members of the third-country CCP college with an explanation of the effects of the requirements it intends to impose on the efficiency, soundness and resilience of CCPs and with a justification of why the requirements are necessary and proportionate to ensure the transmission of monetary policy or the smooth operation of payment systems while adequately respecting the need to protect confidential or sensitive information. In order to avoid duplication, the central bank of issue should cooperate and share information on a continuous basis with ESMA and with the other central banks of issue of all Union currencies of the financial instruments cleared or to be cleared in relation to the temporary requirements applicable in exceptional situations.
(37)
Central bank(s) of issue should provide ESMA with confirmation whether or not a Tier 2 CCP complies with any additional requirements as quickly as possible and in any case within 30 working days of the determination that a third-country CCP is not a Tier 1 CCP or, within 90 working days of the imposition of additional requirements where those requirements have been imposed after a Tier 2 CCP has been recognised.
(38)
The degree of risk posed by a systemically-important CCP to the financial system and stability of the Union varies. The requirements for systemically-important CCPs should therefore be applied in a manner proportionate to the risks that the CCP might present to the Union. Where ESMA, after consulting the European Systemic Risk Board (ESRB), and in agreement with the central banks of issue of all Union currencies of the financial instruments cleared or to be cleared by a third-country CCP, concludes, on the basis of a fully reasoned assessment, including a quantitative technical assessment of the costs and benefits, that a third-country CCP or some of its clearing services are of such systemic importance that compliance with the specific requirements set out in Regulation (EU) No 648/2012 would not sufficiently address the financial stability risk for the Union or for one or more of its Member States, and in the event that other measures are deemed insufficient to address financial stability risks, ESMA should recommend to the Commission that that CCP or some of its clearing services not be recognised. ESMA can, under that procedure, recommend to the Commission not to recognise a CCP, with or without prior classification of the CCP or some of its services as Tier 2.
(39)
On the basis of that recommendation, the Commission should be empowered to adopt, as a measure of last resort, an implementing act specifying that the third-country CCP in question should not be able to provide some or all of its clearing services to clearing members and trading venues established in the Union unless that CCP is authorised in any Member State to do so in accordance with Regulation (EU) No 648/2012. That implementing act should also set up an appropriate adaptation period not exceeding two years, which might be extended once by an additional six months, and should indicate the conditions under which that CCP can continue to provide certain clearing services or activities during the adaptation period and any measures that should be taken during that period in order to limit the potential costs to clearing members and their clients, in particular those established in the Union.
(40)
It is important for central banks of issue to be individually consulted by ESMA and express their agreement with any potential recommendation to deny recognition to a third-country CCP given the impact that such a decision could have on the currency that they issue and on the report by ESMA on the application of a Commission implementing act taken following such a recommendation. However, in the case of such a recommendation or report, the agreement or concerns that a central bank of issue may raise should only relate to the currency that it issues and not to the recommendation as a whole or to the report as a whole.
(41)
ESMA should regularly review the recognition of third-country CCPs as well as their classification as Tier 1 or Tier 2 CCPs. In that regard, ESMA should consider amongst others, the changes in the nature, size and complexity of the third-country CCP's business. Such reviews should take place at least every five years and whenever a recognised third-country CCP has extended or reduced the range of its activities and services in the Union. Where, following that review, ESMA determines that a Tier 1 CCP should be classified as a Tier 2 CCP, ESMA should set an appropriate adaptation period not exceeding 18 months within which the CCP should comply with the requirements applicable to Tier 2 CCPs.
(42)
At the request of a Tier 2 CCP, ESMA should also be able to take into account the extent to which the compliance of such a CCP with the requirements applicable in that third country can be compared to the compliance of that CCP with the requirements of Regulation (EU) No 648/2012. When conducting that assessment, ESMA should take into account the implementing act adopted by the Commission determining that the legal and supervisory arrangements of the third country where the CCP is established are equivalent to those of Regulation (EU) No 648/2012 and any conditions to which the application of that implementing act might be subject. In order to ensure proportionality, ESMA should also consider, when conducting that assessment, the extent to which the financial instruments cleared by the CCP are denominated in Union currencies. The Commission should adopt a delegated act specifying the modalities and conditions to assess such comparable compliance.
(43)
ESMA should have all the powers necessary to supervise recognised third-country CCPs to ensure their ongoing compliance with the requirements of Regulation (EU) No 648/2012.
(44)
In order to facilitate information sharing and cooperation between ESMA, the Member States' competent authorities responsible for CCP supervision, and the competent authorities responsible for supervision of entities on which the operations of the third-country CCPs might have an impact, ESMA should establish a third-country CCP college. The college members should be able to request any specific matter in relation to third-country CCPs to be discussed by the CCP Supervisory Committee.
(45)
In order to enable ESMA to conduct its tasks with regard to third-country CCPs effectively, third-country CCPs should pay supervisory fees for ESMA's supervisory and administrative tasks. Fees should cover costs associated with the applications for recognition of third-country CCPs and their supervision. The Commission should adopt a delegated act specifying further the types of fees, the matters for which fees are due, the amount of the fees and the manner in which they are to be paid.
(46)
ESMA should be able to conduct investigations and on-site inspections of Tier 2 CCPs and related third parties to whom those CCPs have outsourced operational functions, services or activities. Where relevant, the competent authorities responsible for the supervision of the clearing members established in the Union should be informed of the findings of such investigations and on-site inspections. Where relevant for the carrying out of their monetary policy tasks, the central banks of issue of all Union currencies of the financial instruments cleared or to be cleared by the CCP should be able to request participation in such on-site inspections.
(47)
ESMA should be able to impose periodic penalty payments to compel third-country CCPs to end an infringement, to supply complete and correct information required by ESMA or to submit to an investigation or an on-site inspection.
(48)
ESMA should be able to impose fines on both Tier 1 and Tier 2 CCPs where it finds that they have committed, intentionally or negligently, an infringement of Regulation (EU) No 648/2012 by providing incorrect or misleading information to ESMA. In addition, ESMA should be able to impose fines on Tier 2 CCPs where it finds that they have committed, intentionally or negligently, an infringement of the additional requirements applicable to them in that Regulation. Where ESMA has assessed that a Tier 2 CCP in its compliance with the applicable third-country legal framework is deemed to comply with the requirements set out in Article 16 and Titles IV and V of Regulation (EU) No 648/2012, the conduct of that CCP should not be considered an infringement of that Regulation to the extent that it complies with those comparable requirements.
(49)
Fines should be imposed according to the level of seriousness of the infringement. Infringements should be divided into different groups for which specific fines should be allocated. In order to calculate the fine relating to a particular infringement, ESMA should apply a two-step methodology consisting of setting a basic amount and adjusting that basic amount, if necessary, by certain coefficients. The basic amount should be established by taking into account the annual turnover of the third-country CCPs concerned and the adjustments should be made by increasing or decreasing the basic amount through the application of the relevant coefficients in accordance with this Regulation.
(50)
This Regulation establishes coefficients linked to aggravating and mitigating circumstances in order to give the necessary tools to ESMA to impose a fine which is proportionate to the seriousness of the infringement committed by a third-country CCP, taking into account the circumstances under which that infringement has been committed.
(51)
The decision to impose fines or periodic penalty payments should be based on an independent investigation.
(52)
Before deciding whether to impose fines or periodic penalty payments, ESMA should give the persons subject to the proceedings the opportunity to be heard in order to respect their rights of defence.
(53)
ESMA should refrain from imposing fines or periodic penalty payments where a prior acquittal or conviction arising from identical facts, or from facts which are substantially the same, has acquired the force of res judicata as a result of criminal proceedings under national law.
(54)
ESMA's decisions imposing fines and periodic penalty payments should be enforceable and their enforcement should be subject to the rules of civil procedure which are in force in the State in the territory of which it is carried out. Rules of civil procedure should not include criminal procedural rules but could include administrative procedural rules.
(55)
In the case of an infringement committed by a Tier 2 CCP, ESMA should be empowered to apply a range of supervisory measures, including requiring a Tier 2 CCP to bring the infringement to an end and, as a last resort, withdrawing the recognition where a Tier 2 CCP has seriously or repeatedly infringed Regulation (EU) No 648/2012. The supervisory measures should be applied by ESMA taking into account the nature and seriousness of the infringement and should respect the principle of proportionality. Before taking a decision on supervisory measures, ESMA should give the persons subject to the proceedings the opportunity to be heard in order to respect their rights of defence. Where ESMA decides to withdraw recognition, ESMA should limit potential market disruption by defining an appropriate adaptation period not exceeding two years.
(56)
In relation to the validation by competent authorities and ESMA of significant changes to models and parameters adopted to calculate a CCP's margin requirements, default fund contributions, collateral requirements, and other risk-control mechanisms, procedural aspects and the interplay of that validation with the college decision should be clarified. The preliminary adoption of a significant change to the models or parameters should be possible where needed, especially where their swift change is necessary to ensure the soundness of the CCP's risk management.
(57)
Effective supervision of CCPs relies on the building of competences, expertise and capabilities, as well as on the building of cooperative relationships and exchanges between institutions. Since those are all processes that develop over time and follow their own dynamics, the design of a functional, effective and efficient supervisory system for CCPs should take into account its potential evolution in the long term. Therefore, the division of competences established in this Regulation is likely to evolve as the role and capacities of ESMA, supported by the CCP Supervisory Committee, develop. With a view to developing an efficient and resilient supervisory approach regarding CCPs, the Commission should review the effectiveness of ESMA's tasks, in particular those of the CCP Supervisory Committee, in fostering a convergent and coherent application in the Union of Regulation (EU) No 648/2012 and of the division of responsibilities between Union's and Member States' institutions and bodies. The Commission should also report on the impact of this Regulation on the level playing field among CCPs and assess the framework for the recognition and supervision of third-country CCPs. The Commission should submit the report to the European Parliament and to the Council together with any appropriate proposals.
(58)
In order to ensure the effective application of the rules laid down in this Regulation in relation to third-country CCPs, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU) should be delegated to the Commission in respect of the further specification of the type of fees, the matters for which fees are due, the amount of the fees to be paid and the manner in which they are to be paid; the further specification of the criteria determining whether a third-country CCP is systemically important or is likely to become systemically important for the financial stability of the Union or of one or more of its Member States; the further specification of the criteria to be used in its equivalence assessments of third countries; the specification of how and under what conditions certain requirements shall be complied with by third-country CCPs; the further specification of rules of procedure relating to the imposition of fines or periodic penalty payments, including provisions on the rights of defence, time limits, the collection of fines or periodic penalty payments and the limitation periods for the imposition and enforcement of penalty payments or fines; and measures to amend Annex IV in order to take account of developments in the financial markets. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (8). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.
(59)
In order to ensure uniform conditions for the implementation of this Regulation, and in particular with regard to the recognition of third-country CCPs and the equivalence of legal frameworks of third countries, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (9).
(60)
To ensure consistent harmonisation of rules and supervisory practice on extension of activities and services, colleges and review of models, stress testing and back testing, the Commission should be empowered to adopt regulatory technical standards developed by ESMA with regard to the following: the conditions under which additional services or activities to which a CCP wishes to extend its business are not covered by the initial authorisation; the conditions under which Union currencies are to be considered the most relevant for the purpose of central banks of issue membership in colleges and the details of the practical arrangements for the functioning of colleges; and the conditions under which changes to the models and parameters of CCPs are significant. The Commission should adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
(61)
Since the objectives of this Regulation, namely, to increase the safety and efficiency of CCPs by laying down uniform requirements for their activities, cannot be sufficiently achieved by the Member States but can rather, by reason of their scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.
(62)
The use by ESMA of its power to recognise a third-country CCP as a Tier 1 or a Tier 2 CCP should be deferred until the criteria to allow the assessment of: (a) whether or not a third-country CCP is systemically important or likely to become systemically important for the financial system of the Union or of one or more of its Member States; and (b) comparable compliance are further specified.
(63)
Regulation (EU) No 648/2012 should therefore be amended accordingly,
