Annexes to COM(2016)856 - Framework for the recovery and resolution of central counterparties

Please note

This page contains a limited version of this dossier in the EU Monitor.

dossier COM(2016)856 - Framework for the recovery and resolution of central counterparties.
document COM(2016)856 EN
date December 16, 2020
ANNEX

SECTION A

Requirements for recovery plans

The recovery plan shall include the following items:

(1)a summary of the key elements of the plan and a summary of overall recovery capacity;

(2)a summary of the material changes to the CCP since the most recently filed recovery plan;

(3)a communication and disclosure plan outlining how the CCP intends to keep its competent authority informed of the recovery situation and manage any potentially negative market reactions while acting in as transparent a manner as possible;

(4)a comprehensive range of capital, loss allocation, position allocation and liquidity actions required to maintain or restore the viability and financial soundness of the CCP including to restore its matched book and capital, and replenish pre-funded resources and maintain access to sufficient sources of liquidity which are necessary for the CCP to maintain its viability as a going concern and to continue providing its critical services in accordance with the delegated acts adopted on the basis of Articles 16(3) and 44(2) of Regulation (EU) No 648/2012. Loss allocation actions may include recovery cash calls and a reduction in the value of gains payable by the CCP to non-defaulting clearing members, where defined in the operating rules of the CCP, and shall not use the initial margins posted by non-defaulting clearing members to allocate losses in accordance with Article 45(4) of Regulation (EU) No 648/2012;

(5)an assessment of the recovery options with respect to:

(i)the impact of their implementation on the solvency, liquidity, funding positions, profitability and operations of the CCP;

(ii)the external impact and systemic consequences of their implementation on critical functions, shareholders, clearing members, creditors and other stakeholders of the CCP, and where applicable, the rest of the group, and to the extent the information is available, clients and indirect clients of the CCP;

(iii)the feasibility of their implementation, following a detailed analysis of risks, impediments and solutions for the impediments; and

(iv)the impact of their implementation on the continuity of operations, in particular human resources and IT, and access to other financial infrastructures.

(6)appropriate conditions and procedures to ensure the timely implementation of recovery actions, including an estimation of the timeframe for implementing each material aspect of the plan;

(7)a detailed description of any material impediment to the effective and timely implementation of the plan, including consideration of the impact on clearing members and clients including in cases where clearing members are likely to take measures in accordance with their recovery plans as referred to in Articles 5 and 7 of Directive 2014/59/EU, and where appropriate on the rest of the group;

(8)an assessment of the appropriateness of the recovery options to address each relevant recovery plan scenario, based on how those options:

(i)ensure transparency and allow those who could be exposed to losses and liquidity shortfalls to measure, manage and control such potential losses and shortfalls;

(ii)provide incentives to shareholders, clearing members and their clients and the financial system; and

(iii)minimise negative impact on clearing members and their clients and the financial system;

(9)identification of critical functions;

(10)a detailed description of the processes for determining the value and marketability of the core business lines, operations and assets of the CCP;

(11)a detailed description of how recovery planning is integrated into the corporate governance structure of the CCP, how it forms part of the operating rules of the CCP agreed to by clearing members, as well as the policies and procedures governing the approval of the recovery plan and identification of the persons in the organisation responsible for drawing up and implementing the plan;

(12)arrangements and measures incentivising non-defaulting clearing members to bid competitively in auctions of a defaulted members’ positions;

(13)arrangements and measures to ensure that the CCP has adequate access to contingency funding sources, including potential liquidity sources, to enable it to continue to carry out its operations and meet its obligations as they fall due;

(14)an assessment of available collateral and an assessment of the possibility to transfer resources or liquidity across business lines;

(15)arrangements and measures:

(i)to reduce risk;

(ii)to restructure contracts, rights, assets and liabilities;

(iii)to restructure business lines;

(iv)necessary to maintain continuous access to FMIs and trading venues;

(v)necessary to maintain the continuous functioning of the CCP’s operational processes, including infrastructure and IT services;

(vi)to partially or fully terminate contracts;

(vii)to reduce the value of any gains payable by the CCP to non-defaulting clearing members, if applicable, depending on the type of instruments that the CCP clears; and

(viii)to oblige non-defaulting clearing members to make a contribution in cash to the CCP up to at least each clearing member’s contribution to the default fund. This recovery cash call obligation shall also be included and referred to in the CCP’s rules and other contractual arrangements;

(16)preparatory arrangements to facilitate the sale of assets or business lines in a timeframe appropriate for the restoration of financial soundness, including an assessment of the potential impact of such a sale on the operations of the CCP;

(17)where other management actions or strategies to restore financial soundness are envisaged, a description of those actions or strategies and their anticipated financial effect;

(18)preparatory measures that the CCP has taken or plans to take in order to facilitate the implementation of the recovery plan, including those necessary to enable the timely recapitalisation of the CCP, restoring its matched book and replenishment of its pre-funded resources as well as its enforceability across borders;

(19)a framework of quantitative and qualitative indicators which identifies the points at which appropriate actions referred to in the plan may be taken;

(20)where applicable, an analysis of how and when the CCP may apply, in the conditions addressed in the plan, for the use of central bank facilities and identify those assets that would be expected to qualify as collateral under the terms of the central bank facility;

(21)taking into account Article 49(1) of Regulation (EU) No 648/2012, a range of scenarios that would severely affect the financial soundness or operational viability of the CCP and be relevant to the CCP’s specific conditions such as its product mix, business model and liquidity and risk governance framework, including scenarios involving system-wide events or events specific to the legal entity and any group to which it belongs and specific stress to the individual clearing members of the CCP or, where appropriate, a linked FMI; and

(22)taking into account Article 34, and Article 49(1), of Regulation (EU) No 648/2012, a range of scenarios that would severely affect the financial soundness or operational viability of the CCP and result both from the stress or default of one or more of its members, including scenarios going beyond the stress or default of at least the two clearing members to which the CCP has the largest exposures under extreme but plausible market conditions, and from other reasons including losses from the CCP’s investment activities or from operational problems, including severe external threats to a CCP’s operations due to an external disruption, shock or cyber-related incident.

SECTION B

Information that resolution authorities may request CCPs to provide for the purposes of drawing up and maintaining resolution plans

For the purposes of drawing up and maintaining resolution plans, resolution authorities may request CCPs to provide at least the following information:

(1)a detailed description of the CCP’s organisational structure including a list of all legal persons;

(2)identification of the direct holders and the percentage of voting and non-voting rights of each legal person;

(3)the location, jurisdiction of incorporation, licensing and key management associated with each legal person;

(4)a mapping of the CCP’s critical functions and core business lines, including balance sheet details of such functions and business lines, by reference to legal persons;

(5)a detailed description of the components of the CCP’s and all its legal entities’ business activities, separating, at a minimum by types of services and respective amounts of cleared volumes, open interest, initial margin, variation margin flows, default funds and any associated assessment rights or other recovery actions pertaining to such business lines;

(6)details of capital and debt instruments issued by the CCP and its legal entities;

(7)an identification of from whom the CCP has received collateral and in what form (title transfer or security interest), and to whom it has pledged collateral and in what form and the person that holds the collateral, and in both cases the jurisdiction in which the collateral is located;

(8)a description of the off balance sheet exposures of the CCP and its legal entities, including a mapping to its critical operations and core business lines;

(9)the material hedges of the CCP including a mapping to legal persons;

(10)identification of the relative exposures and importance of clearing members of the CCP as well as an analysis of the impact of the failure of major clearing members on the CCP;

(11)each system on which the CCP conducts a material number or value amount of trades, including a mapping to the CCP’s legal persons, critical operations and core business lines;

(12)each payment, clearing or settlement system of which the CCP is directly or indirectly a member, including a mapping to the CCP’s legal persons, critical operations and core business lines;

(13)a detailed inventory and description of the key management information systems, including those for risk management, accounting and financial and regulatory reporting used by the CCP including a mapping to the CCP’s legal persons, critical operations and core business lines;

(14)an identification of the owners of the systems identified in point (13), service level agreements related thereto, and any software and systems or licenses, including a mapping to their legal entities, critical operations and core business lines;

(15)an identification and mapping of the legal persons and the interconnections and interdependencies among the different legal persons such as:

(i)common or shared personnel, facilities and systems;

(ii)capital, funding or liquidity arrangements;

(iii)existing or contingent credit exposures;

(iv)cross-guarantee agreements, cross-collateral arrangements, cross-default provisions and cross-affiliate netting arrangements;

(v)risks transfers and back-to-back trading arrangements;

(vi)service level agreements;

(16)the competent authority and resolution authority for each legal person, if different to those designated under Article 22 of Regulation (EU) No 648/2012 and under Article 3 of this Regulation;

(17)the member of the board responsible for providing the information necessary to draw up the resolution plan of the CCP as well as those responsible, if different, for the different legal persons, critical operations and core business lines;

(18)a description of the arrangements that the CCP has in place to ensure that, in the event of resolution, the resolution authority will have all the necessary information, as determined by the resolution authority, for applying the resolution tools and exercising the resolution powers;

(19)all the agreements entered into by the CCP and their legal entities with third parties the termination of which may be triggered by a decision of the authorities to apply a resolution tool and whether the consequences of termination may affect the application of the resolution tool;

(20)a description of possible liquidity sources for supporting resolution;

(21)information on asset encumbrance, liquid assets, off-balance sheet activities, hedging strategies and booking practices.

SECTION C

Matters that the resolution authority is to consider when assessing the resolvability of a CCP

When assessing the resolvability of a CCP, the resolution authority shall consider the following:

(1)the extent to which the CCP is able to map core business lines and critical operations to legal persons;

(2)the extent to which legal and corporate structures are aligned with core business lines and critical operations;

(3)the extent to which the legal structure of the CCP inhibits the application of the resolution tools as a result of the number of legal persons, the complexity of the group structure or the difficulty in aligning business lines to group entities;

(4)the extent to which there are arrangements in place to provide for essential staff, infrastructure, funding, liquidity and capital to support and maintain the core business lines and the critical operations;

(5)the existence and robustness of service level agreements;

(6)the extent to which the service agreements that the CCP maintains are fully enforceable in the event of resolution of the CCP;

(7)the extent to which the governance structure of the CCP is adequate for managing and ensuring compliance with the CCP’s internal policies with respect to its service level agreements;

(8)the extent to which the CCP has a process for transitioning the services provided under service level agreements to third parties in the event of the separation of critical functions or of core business lines;

(9)the extent to which there are contingency plans and measures in place to ensure continuity in access to payment and settlement systems;

(10)the adequacy of the management information systems in ensuring that the resolution authorities are able to gather accurate and complete information regarding the core business lines and critical operations so as to facilitate rapid decision making;

(11)the capacity of the management information systems to provide the information essential for the effective resolution of the CCP at all times even under rapidly changing conditions;

(12)the extent to which the CCP has tested its management information systems under stress scenarios as defined by the resolution authority;

(13)the extent to which the CCP can ensure the continuity of its management information systems both for the affected CCP and the new CCP in the case that the critical operations and core business lines are separated from the rest of the operations and business lines;

(14)the extent to which any intra-group guarantees are provided at market conditions and the risk management systems concerning those guarantees are robust, where the CCP benefits from or is exposed to such guarantees;

(15)the extent to which any intra-group transactions are performed at market conditions and the risk management systems concerning those transactions practices are robust, where the CCP engages in such transactions;

(16)the extent to which the use of any intra-group guarantees or transactions increases contagion across the group;

(17)the extent to which the resolution of the CCP could have a negative impact on another part of its group, in particular where such group comprises other FMIs, where applicable;

(18)whether third-country authorities have the resolution tools necessary to support resolution actions by Union resolution authorities, and the scope for coordinated action between Union and third-country authorities;

(19)the feasibility of applying resolution tools in such a way which meets the resolution objectives, given the tools available and the CCP’s structure;

(20)any specific requirements needed to issue new instruments of ownership as referred to in Article 33(1);

(21)the arrangements and means through which resolution could be hampered in the cases of CCP that have clearing members or collateral arrangements established in different jurisdictions;

(22)the credibility of applying resolution tools in such a way which meets the resolution objectives, given possible impacts on clearing members and, where applicable, their clients, other counterparties and employees and possible actions that third-country authorities may take;

(23)the extent to which the impact of the CCP’s resolution on the financial system and on financial market’s confidence can be adequately evaluated;

(24)the extent to which the resolution of the CCP could have a significant direct or indirect adverse effect on the financial system, market confidence or the economy;

(25)the extent to which contagion to other CCPs or to the financial markets could be contained through the application of the resolution tools and the exercise of the resolution powers; and

(26)the extent to which the resolution of the CCP could have a significant effect on the operation of payment and settlement systems.