EC’s Hill to review clearing, capital disputes

Bank's are facing intense pressure from the capital rules within their derivatives clearing business.

The European Commission’s head of market infrastructure will look to tackle disputes surrounding the clearing rules and incoming capital requirements, as part of a wider sweep of post-trade reforms.

Jonathan Hill, Commissioner for financial stability, financial services and Capital Markets Union, said the capital rules should not impede the ability of banks to carry out central clearing of OTC derivatives.

“We must make sure that the cumulative impact of bank capital rules such as the leverage ratio and EMIR are not overly burdensome, that they don't weigh too heavily on those that provide clearing services and don’t undermine sensible business planning and risk management,” Hill said.

Facing the pressures of the capital rule, it resulted in a swathe of radical changes in the business models of clearing banks, of futures commission merchants (FCMs), including raising costs, cutting customers, and even pulling out of the business altogether.

These include State Street, Nomura, BNY Mellon and RBS.

Hill also said he is determined to make rules set out in EMIR “more proportionate”, and has proposed to “lower administrative reporting burdens.”

“Across the whole of the financial sector there are concerns that legislation is not always proportionate. That in some areas it may be limiting the amount of financing available to the wider economy. And that there's too high a compliance burden, particularly on smaller businesses,” Hill adds.

“We’ll complete our analysis by the summer, by which time we should be clearer on what further actions are needed.”