The head of Europe’s securities regulator has called for the EU to rethink its model in granting foreign clearing houses equivalency.
Under the European Markets Infrastructure Regulation (EMIR), a third country must be deemed as having compatible rules as the EU in order to allow its clearing houses to process cross-border derivatives trades.
The EU has currently approved 22 third country central counterparties (CCPs) from countries including the US, Canada, Mexico, South Africa, Hong Kong, Japan, Australia, and Singapore among others.
However Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), outlined the flaws that currently exist within the EU’s equivalency approach to delegates at a European conference
“Third country CCPs have benefited from the EU’s equivalence system, while EU CCPs are still required to be authorised and to be subject to the supervision of the third country regulator when they want to be active outside the EU. Obviously, this was not the intended result when designing the equivalence mechanism” stated Maijoor.
Maijoor also outlined concerns over the risks third country CCPs pose in the EU that are adequately supervised by its home regulator.
“ESMA has very limited opportunities to see the specific risks that third country CCPs might be creating in the EU as we have very limited powers regarding information collection and risk assessment,” he added.