EBF ANALYSIS
Derivatives Clearing – Review of the European Market Infrastructure Regulation and accompanying changes to other Regulation and Directives (EMIR/CRR/MMFR and UCITD/CRD/IFD)
BRUSSELS, 15 May 2023 – The European Banking Federation (EBF) welcomes the legislative package set forth in the communication by the European Commission “A path towards a stronger EU clearing system’’ of December 7th, 2022 to support the development of a better integrated and more attractive clearing landscape in the EU.
In the proposal, the Commission has taken important positive steps to achieve such objectives, including the removal of equivalence as a pre-condition to the availability of the intragroup transaction exemption and the streamlining EU CCPs supervisory procedures for launching new products and model changes.
At the same time, against this background, EBF members emphasize that the proposal also features substantial and highly complex elements, which, if incorrectly and inappropriately addressed, may lead to unforeseen and extensively adverse effects on the competitiveness, resilience and attractiveness of European financial markets and their financial institutions.
Hence, with a view to ensuring the highest quality in legislative outcome and to promote a comprehensive and thorough discussion that may be as evidence-based as possible on the reform of EMIR rules and other critical pieces of regulation going forward, EBF experts the following key observations.
For more information:
Jacopo Borgognone, Financial Markets – Financing Sustainable Growth, j.borgognone@ebf.eu
x
About the EBF:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.
The post EBF Analysis: Derivatives Clearing – Review of the European Market Infrastructure Regulation and accompanying changes to other Regulation and Directives (EMIR/CRR/MMFR and UCITD/CRD/IFD) appeared first on EBF.
]]>EBF CONSULTATION FEEDBACK
x
EBF feedback to the EC consultation on the review of the central clearing framework in the EU
BRUSSELS, 23 March 2022 –EBF welcomes the extension of equivalence for UK CCPs until June 2025 and the EC’s consultation on the review of the clearing framework in the EU.
EBF would like to highlight that any forced relocation strategy or other coercive measures will not achieve, and would likely undermine, the objective of a competitive and resilient EU clearingas such strategy would, by definition, only capture EU market participants due to the territoriality of EMIR.
A forced relocation restricted to EU clearing market will:
- Separate EU markets from the more liquid international markets
- Create an EU self-isolated market, structurally illiquid and unbalanced (prevalence of one-directional positions). Besides, non-EU market participants will not have any incentive to move trading activities into the EU other than to benefit from arbitrage opportunities. EU entities will, in fact, be cut-off from international markets. Moreover, it will restrict EU entities’ ability to offer market making and client clearing to both their non-EU and EU clients will not be subjected to the EMIR clearing obligation: this would imply serious, far-reaching consequences on their own competitiveness and on the international competitiveness of EU capital market (more, rather than less reliance on 3rd country institutions).
The risks of serious market disruptions and complex practical, operational and legal challenges in case of a forced relocation, especially if extended to legacy positions, have been pointed out in several occasions (see also below).
The following measures have similar effects and contravene the stated objective of increasing the attractiveness/competitiveness of the EU clearing and capital market while also severely harming the international competitiveness of EU institutions:
- Punitive capital charges will not produce inflow of non-EU liquidity (in effect similar to forced relocation). It will however significantly weaken the attractiveness and competitiveness of EU clearing members.
- Reduction targets will have little impact and their calibration and fair implementation/monitoring will be very difficult.
- Any FRANDT additional requirements may create disincentive to offer/expand clearing services. The focus should lie on measures improving efficiency and the international competitiveness of the EU clearing offer and helping to attract non-EU liquidity as well as EU-liquidity, rather than creating coercive measures directed against EU entities and cutting-off their access to international markets.
We would consider any approach that harms the clearing infrastructure in favour of one particular CCP to be disproportionate. In this context we ask the European Commission to only consider measures that make clearing in the EU more attractive, without disproportionally undermining other market participants that are key to the fair and efficient provision of clearing services.
For more information:
Paulin Guérin, Senior Policy Adviser Financing Sustainable Growth, p.guerin@ebf.eu
x
About the EBF:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
The post EBF feedback to the EC consultation on the review of the central clearing framework in the EU appeared first on EBF.
]]>EBF advisor: Pauline Guerin
Publication date: 4 February 2020
In line with the 2020 European Commission work program, the EBF supports amendments to MIFID and MIFIR requirements.
- The EBF is supportive of further consistency in EU regulation (in particular MIFID, PRIIPS and UCITS). The EBF would also like to stress the need for amendments to be evidence-based and for firms to begiven a sufficiently long implementation period in order to adapt to the new rules. Finally, the EBF supports the need for an overall assessment of MiFID 2/MiFIR to be conducted according to the principle of proportionality.
- Wholesale clients should be exempted from the information requirements in MiFID 2 whilst allowing individual clients to opt down and be treated as retail clients for a particular service or transaction. With specific reference to the disclosure of the costs and charges’ requirements, we believe it would be more balanced to provide a full exemption from the ex-ante disclosure.
- We support the proposal to allow investment firms to provide ex-ante cost information under the same conditions as set out in Article 25 (6) MiFID 2. The article entitles the provision of a suitability report immediately after the transaction under certain conditions and without having to delay the transaction.
- Regarding market structure, we support the improvement of data quality and reporting requirements and would highlight, too, the issue of raising data costs.
Find the EBF response in this consultation by clicking the ‘full document’ link below:
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
The post German Position Paper on MiFID Review: EBF comments appeared first on EBF.
]]>EBF advisor: Jacopo Borgognone
kkkkkkkkkkkkkkkkkkkkkkk
Publication date: 2 December 2019
The EBF fully supports the opportunity to comment on the proposal for a specification of the conditions under which the commercial terms under which clearing services are provided are to be considered to be fair, reasonable, non-discriminatory and transparent (FRANDT-requirements).
These requirements need to strike the right balance between the interest of clients in having unfettered access to clearing services on the one hand and the interests of clearing service providers. For example, as concepts such as reasonableness and fairness can only be assessed in relation to the prevailing market conditions, which can change over time, rendering FRANDT requirements unfit for purpose if they are calibrated too restrictively. This would likely also increase unnecessarily compliance costs, and it should be taken into account when drafting the rules.
The consultation paper generally recognises this by addressing both the difficulties clients may face in getting access to clearing services and the considerable challenges and costs
associated with establishing client clearing services. Again, it should be noted in this context that, apart from the factors mentioned under Section 4 of the Consultation Paper (in particular paragraph 23 to 27), the burdens associated with the constantly expanding complex regulatory requirements also work as a significant disincentive to establish or
expand client clearing services.
On this delicate basis, any decreased access to clearing as a result of additional regulation should be avoided. In this, the EBF is convinced that the FRANDT-requirements should be carefully calibrated as to ensure a meaningful addition to the existing requirements for the provision of clearing services.
Another central aspect in this connection is the mitigation and management of the risks associated with clients and client positions. As effective and efficient risk management is of paramount importance, institutions will always need to perform a risk assessment exercise before considering whether to offer or expand client clearing services and assessing under what conditions these services to existing or new clients should be offered.
It is also important that the FRANDT-rules do not result in a price regulation or an obligation to contract (cf. Recital 11 of EMIR Refit).
Furthermore, it should be taken into account that the conditions under which client clearing services can be provided are, to a considerable extent, determined by the relevant central counterparties (CCPs).
Having said this, we concur with the proposals made in the Consultation Paper to some extent.
However, certain aspects raise some concerns and should be reviewed in order to ensure that the FRANDT-requirements will ultimately achieve the intended purposes – thus facilitating the access to clearing services and encouraging institutions to offer client clearing services.
Key points:
• Before adopting new delegated acts that would specify the conditions under which commercial terms in clearing agreements are considered to be fair, reasonable, non-discriminatory and transparent, the EBF believes that an assessment of the real impact of additional rules should be made, in particular considering whether further rules are needed in addition to the level 1 rules set out under EMIR.
• It should be taken into consideration how the introduction of such deeply prescriptive client classification criteria could negatively impact the service providers’ ability to correctly apply their risk management policies. In fact, certain proposals would require changes to these frameworks with the consequence that clearers would have to unwillingly assume certain risks, affecting their participation in the clearing market, even leading to market-exit.
• Requirements regarding the contractual documentation used in connection with client clearing services, in particular the proposal to require the institutions to publish the contractual agreements even where these are standard industry documentations (here, a reference to such standard documents should be entirely sufficient and would be clearly more appropriate) and
• The requirement to include applicable statutory requirements in the contractual agreement itself.
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
The post Draft technical advice clearing under EMIR-FRANDT: EBF response appeared first on EBF.
]]>PRESS RELEASE
ISDA, EBF, ICMA and ISLA Publish Whitepaper on Benefits of Post-trade Risk Reduction Services
BRUSSELS, 9 April 2018 – The International Swaps and Derivatives Association, Inc. (ISDA), the European Banking Federation (EBF), International Capital Market Association (ICMA) and the International Securities Lending Association (ISLA) have today published a whitepaper on the benefits of post-trade risk reduction services as a crucial risk management tool.
Post-trade risk reduction services like compression and counterparty rebalancing play an increasingly important role in reducing risks in derivatives markets. Compression, for example, results in offsetting trades between multiple parties being torn up, which reduces the size of gross derivatives exposures, in turn reducing systemic risk.
These risk-mitigating benefits are recognized in the European Union (EU) under the revised Markets in Financial Instruments Directive and its associated regulation (MIFID II/MIFIR), which exempt post-trade risk reduction administrative transactions from the trading obligation. There is, however, currently no exemption from the clearing obligation in the EU for these transactions. The failure to recognize these strictly non-trading and market risk neutral administrative transactions within the European Market Infrastructure Regulation (EMIR) limits systemic risk reduction in derivatives markets.
In the paper, ISDA, the EBF, ICMA and ISLA recommend that EMIR be amended as part of the Regulatory Fitness and Performance Program, or REFIT, to exempt transactions resulting from post-trade risk reduction services from the clearing obligation, or to empower the European Securities and Markets Authority to do so.
“Post-trade risk reduction has become an essential risk-management tool for the derivatives market, resulting in hundreds of trillions of euros in derivatives risks being removed. An exemption from the EMIR clearing obligation for transactions resulting from post-trade risk reduction would help further reduce systemic risk,” said Roger Cogan, Head of European Public Policy at ISDA.
“Collateral in the form of margin is an essential risk management tool, but rather than over rely on this mechanism, it makes sense to better facilitate post-trade risk reduction and so reduce aggregate exposure levels,” said ICMA Chief Executive Martin Scheck.
“Recognizing the risk reduction benefits of compression – for example, reducing counterparty risk and therefore systemic risk – is critical when considering amendments to EMIR,” said Mark Hutchings, Chief Operating Officer at ISLA. “For securities lending, post-trade risk reduction like compression will bring with it efficiencies such as less collateral being called, which will ultimately improve collateral liquidity and reduce collateral costs.”
The Associations make the following recommendations on conditions for satisfying any exemption.
- They should be market risk neutral: They are designed to not change the directional market risk of the portfolios concerned, but rather reduce counterparty, operational and systemic risk in respect of existing derivatives transactions.
- They should be non-price forming: While they may involve a new legal transaction (rather than a trading transaction) in order to achieve the identified risk reduction result, participants are not able to post bids or offers, no price negotiation takes place and market risk neutrality means transactions are recorded away from market prices on stale curves.
- They should address second-order portfolio risks: They do not offer a vehicle for taking market positions or entering into trading transactions. Their purpose is the reduction of operational, counterparty and systemic risk.
- Single multilateral compound transaction: The risk-reduction cycles are binding on an all or nothing basis across all cycle participants and the transaction components are executed as a single compound bulk legal transaction.
For Press Queries, Please Contact:
Nick Sawyer, ISDA London, +44 203 808 9740, nsawyer@isda.org
Michael Milner-Watt, ISDA London, +44 203 808 9727, mmilner-watt@isda.org
Lauren Dobbs, ISDA New York, +1 212 901 6019, ldobbs@isda.org
Amanda Leung, ISDA Hong Kong, +852 2200 5911, aleung@isda.org
Raymond Frenken, EBF, +32 2 508 3732, r.frenken@ebf.eu
Margaret Wilkinson, ICMA, +44 207 213 0323, margaret.wilkinson@icmagroup.org
Roshan Adam, ISLA, +44 203 3786 2368, roshan.adam@isla.co.uk
About ISDA
Since 1985, ISDA has worked to make the global derivatives markets safer and more efficient. Today, ISDA has over 875 member institutions from 68 countries. These members comprise a broad range of derivatives market participants, including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure, such as exchanges, intermediaries, clearing houses and repositories, as well as law firms, accounting firms and other service providers. Information about ISDA and its activities is available on the Association’s website: www.isda.org, Twitter: @ISDA
About the European Banking Federation
The European Banking Federation is the voice of the European banking sector, bringing together 32 national banking associations in Europe that collectively represent some 3,500 banks – large and small, wholesale and retail, local and international – employing approximately two million people. EBF members represent banks that make available loans to the European economy in excess of €20 trillion and that securely handle more than 400 million payment transactions per day. Launched in 1960, the EBF is committed to creating a single market for financial services in the European Union and to supporting policies that foster economic growth. www.ebf.eu @EBFeu
About ICMA
ICMA is the trade association for the international capital market with over 530 member firms from 60 countries, including banks, issuers, asset managers, infrastructure providers and law firms. It performs a crucial central role in the market by providing industry-driven standards and recommendations for issuance, trading and settlement in international fixed income and related instruments. ICMA liaises closely with regulatory and governmental authorities, both at the national and supranational level, helping to ensure that financial regulation promotes the efficiency and cost effectiveness of the capital market. www.icmagroup.org
About ISLA
ISLA is a trade association which represents the interests of participants within the securities lending and borrowing markets. Formed in 1989, ISLA has over 140 members comprising of asset managers, banks, insurance companies, pension funds, securities dealers and service providers. The ISLA team now consists of five full-time staff and are guided by an elected board of fifteen professionals who represent firms from all parts of the industry globally.
ISLA’s aims include: working with regulators to provide a safe and efficient framework for securities lending; highlighting new market developments; ensuring sound industry practices; enhancing the public profile of the securities lending industry; fostering good communication and co-operation with other trade associations; promoting the use of the Global Master Securities Lending Agreement (GMSLA) as the market standard legal agreement. www.isla.co.uk
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
The post ISDA, EBF, ICMA and ISLA Publish Whitepaper on Benefits of Post-Trade Risk Reduction Services appeared first on EBF.
]]>EBF advisor: Simon Pettinger
kkkkkkkkkkkkkkkkkkkkkkk
Publication date: 03 November 2017
The European Banking Federation has responded to the Commission’s proposal to amend the European Market Infrastructure Regulation (EMIR). The EBF broadly agrees with the aim of the proposal to provide simpler and more proportionate rules OTC derivatives to reduce costs and regulatory burdens for market participants, however there are some important changes introduced in the proposal that should be reconsidered to ensure that the proposal continues to fulfil its original objectives and supports the Capital Markets Union.
Key points:
kkkkkkkkkkkkkkkkkkkkkkk
- Securitisation Special Purpose Entities should not be reclassified as financial counterparties under EMIR
Under the current European Market Infrastructure Regulation (EMIR), EU established securitisation SPVs do not fall under the definition of financial counterparties and they are designated as non-financial counterparties (NFCs). The Commission’s proposal to reclassify securitisation SPV’s, under EMIR, as Financial Counterparties from their current status as Non-Financial Counterparty’s (NFC’s) will subject these deals to the clearing and margining rules and will result in severe problems for existing deals. Additionally, we believe that imposing such intensive obligations (clearing and margin requirements) for SSPEs is unnecessary as SSPEs already contain risk mitigants and are protected from counterparty risks.
- Physically-settled Foreign Exchange (FX) Forwards should continue to benefit from a temporary exemption of variation margin requirements
Physically-settled Foreign Exchange (FX) Forwards benefit from a temporary exemption of variation margin requirements under EMIR, however this exemption is only applicable until 03 January 2018, the day of the entry into application of MiFID 2. We request that FX contracts are excluded from the Margin RTS’ VM requirements, and instead an approach is adopted to VM for FX Contracts, for example via harmonized supervisory guidance or incorporating the VM provisions from the FX Guidance into the Margin RTS, that achieves closer alignment between the EU and other jurisdictions whilst still ensuring the relevant risks are adequately addressed.
- Support for the exemption of small non-financial counterparties (NFCs-) from the transaction reporting obligation, and recommend moving to single-sided reporting
With regard to trade reporting, we welcome the exemption of small non-financial counterparties (NFCs-) from the transaction reporting obligation given the operational complexity this is generating for these entities. However, requiring financial counterparties (FCs) to report both sides of their transactions with NFCs- would result in additional burden for FCs without improving the quality of the reported data. On these grounds, we recommend moving from a ‘dual-sided’ mandatory delegation regime to a single-sided reporting for FCs’ transactions with NFCs.
Subscribe to the EBF Weekly + FinReg Agenda
Every Friday at noon you can receive the EBF Weekly + Financial Regulation Agenda. This agenda presents an overview of upcoming European and international meetings and conferences in financial regulation, as well as important general financial and economic events and key EBF meetings for the week ahead. CLICK HERE TO SUBSCRIBE
Subscribe to the EBF Morning Brief
The EBF Morning Brief is published Monday through Friday morning and brings you the top banking headlines, relevant announcements from the EU institutions and the latest from the EBF and its members, national banking associations in 32 countries in Europe. CLICK HERE TO SUBSCRIBE
The post EBF responds to Commission proposal to amend the European Market Infrastructure Regulation appeared first on EBF.
]]>