WIREDGOV

The European Commission determines that five countries (Canada, Switzerland, South Africa, Mexico and the Republic of Korea) have the equivalent regulatory regimes for central counterparties as the European Union.

These decisions follow previous determinations of equivalence made in October 2014 for four other countries (Australia, Singapore, Japan and Hong Kong).

The European Commission recently adopted five 'equivalence' decisions for the regulatory regimes for central counterparties (CCPs) in Canada, Switzerland, South Africa, Mexico and South Korea. CCPs are bodies that sit in the middle of derivatives contracts, becoming the buyer to every seller and the seller to every buyer. The G20 has encouraged the use of CCPs since the financial crisis to reduce risk in derivatives trading.

EU Commissioner Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union said recently:

"I am pleased to announce these equivalence decisions for Canada, Switzerland, South Africa, Mexico and the Republic of Korea today.  Derivatives markets are global in nature and today's decisions reflect that.  We continue to work with other third country regulators to assess the equivalence of further regimes and will make additional decisions as soon as is possible."

Why are we doing it?

An assessment for equivalence is undertaken by the European Commission if a CCP from third country seeks recognition from the European Securities and Markets Authorities (ESMA). This means that the authority in the third country concerned must be able to show that its rules achieve the same objectives as in the EU, - in this case, robust CCP framework promoting financial stability through a reduction in systemic risk. It does not mean that identical rules need to be in place in that country.

This assessment is undertaken in cooperation with the regulators in the country concerned. If a determination of equivalence is made, it is given effect through a legally binding implementing act in accordance with Article 25(6) of the European Market Infrastructure Regulation (EMIR) (Regulation (EU) No 648/2012).

Who will be affected and how?

The CCPs in these non-EU countries will be able to obtain recognition in the EU. Market participants will be able to use them to clear standardised over-the-counter derivative trades as required by EU legislation, while the CCPs will remain subject solely to the regulation and supervision of their home jurisdictions. CCPs that have been recognised under the EMIR process will also obtain qualifying CCP (QCCP) status across the European Union under the Capital Requirements Regulation (CRR). This means that EU banks' exposures to these CCPs will be subject to a lower risk weighting in calculating their regulatory capital.

What happens next?

A non-EU CCP wishing to obtain recognition must apply to the European Securities and Markets Authority (ESMA). ESMA will then process the application in cooperation with the relevant regulators of the CCP that has applied for recognition.

For more information

http://ec.europa.eu/internal_market/financial-markets/derivatives/index_en.htm

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• Patrick Mc Cullough (+32 229 87183)

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