ESMA tells authorities to shore-up default testing of CCPs

ESMA has urged national regulators to improve their oversight of default testing procedures for clearing houses.

The European Securities and Markets Authority (ESMA) has highlighted issues with various national regulators over their supervision of default testing for clearing houses.

Despite stating that overall there was ‘good supervision’ of central counterparties (CCPs), ESMA found that “not all NCAs do systematically review their respective CCPs’ default management procedure tests and fire drills.”

ESMA found that two NCAs had not undertaken a comprehensive review of their CCPs’ DMP, which is non-compliant with its rules under EMIR.

The European regulator has recommended that each NCA should review annually the default management procedures of CCPs and conduct regular tests and fire drills, in compliance with EMIR requirements.

“The role of CCP supervisors is to ensure that CCPs remain resilient at all times by ensuring compliance with regulatory requirements,” said Steven Maijoor, Chair, ESMA.

“EU supervision of CCPs needs to be coherent across the Union. Our review helps to ensure that NCAs properly and consistently supervise CCPs and in doing so we identified good supervisory practices and those areas where further convergence is still needed.”