On September 22, ESMA published a consultation paper on draft regulatory technical standards (RTS) for central counterparties’ (CCP) business reorganization plans, as part of the resolution regime for CCPs under the EU CCP recovery and resolution regulation.

ISDA and the Futures Industry Association (FIA) responded jointly to the consultation. The Associations are supportive overall of ESMA’s consultation on the draft RTS on business reorganization plans, and welcome the opportunity to provide comments on this draft RTS.

Our members acknowledge the importance of maintaining the continuity of the critical functions and core business lines of a CCP in resolution. Business reorganization plans play an important role in achieving this objective. As such, they should be carefully designed, in consultation with clearing members.

The Associations are concerned with the proposal to include a reference to recovery measures as part of the measures that could be adopted under the business reorganization plan, for several reasons, set out in our response to Question 2. In addition, the Associations invite ESMA to add a requirement to consider potential risks of conflicts of interest that may arise if a CCP’s incumbent management develops the business reorganization plan. Similarly, we think the plan should also include a review of the CCP’s risk management framework.

The Associations would like to invite ESMA to strengthen the criteria that must be met for the plan to be approved by the competent authority, as further set out in our response to Question 4. This includes considering the extent to which the plan is developed in transparency and consultation with clearing members, especially given the impact that previously applied recovery and resolution measures will have occasioned on them. We note that our above point on conflicts of interest should also be factored into authorities’ assessment of the plan, as any such potential conflict would taint the credibility – and potential viability – of the plan. We would also suggest strengthening the requirement to consider potential financial stability impacts of the plan when assessing the viability of the plan.

Finally, we would suggest that authorities have regard to relevant guidance from the Financial Stability Board (FSB) when assessing the viability of the plan – and we more generally encourage ESMA to take account of any relevant policy outcome from the FSB’s current work on CCP resolution.

Please find below the ESMA response form and the same response in an easy readable format.