ISDA and its members welcome the European Union’s review of CCP supervision arrangements. We agree with the proposal’s objective of ensuring that EU supervisors are able to exercise appropriate and proportionate oversight of CCPs that provide clearing services in the EU. We also support the review of the supervision arrangements for third country CCPs which are systematically important for the European Union.
ISDA members note the inclusion of a location policy within the proposed regulation and Vice President Dombrovskis’s statement on June 13, 2017 that it is meant to be a “last resort” to be used “only when a CCP is of substantial systemic importance and enhanced supervision by ESMA is not sufficient to safeguard financial stability”.
Our membership has serious concerns about the risks presented by a location policy such as the geographical fragmentation of markets and distortions in competition, as well as material adverse impacts on the reduction of systemic risk, added costs, and reduced market liquidity and efficiency. Further, a location policy could have a significant impact on the structure and functioning of capital markets in the EU and consequently the financing of the EU economy and on EU end users. It could also have negative repercussions among policymakers in other jurisdictions because of its extraterritorial implications.
While we recognize and share the proposal’s objective of ensuring that EU supervisors are able to exercise appropriate and proportionate oversight of CCPs that provide clearing services in the EU, ISDA is unable to support an approach that gives rise to the serious risks referred to above.
As such, our members welcome the EC’s proposal to make enhanced supervisory cooperation the preferred option and we encourage the EC to continue to build on regimes that rely on regulatory coordination, cooperation and deference, such as those already practised today between the Commodity Futures Trading Commission (CFTC) and the Bank of England (BoE) in their supervision of SwapClear, which have served the derivatives markets well since the financial crisis.
ISDA’s membership includes CCP clearing members, financial and non‐financial clients of clearing members and CCPs. We have consulted and received input from all its membership in developing this response. In line with ISDA’s mission, and notwithstanding the impact location policy could have on other globally systemic important CCPs, our response covers the impact of the proposed regulation on CCPs clearing derivatives. Many but not all of the points made will equally apply to CCPs clearing other types of products.
This response continues the points made in the letter to Vice‐President Dombrovskis, dated June 8, 2017.
ISDA believes the clear aim should be to develop a consistent and global ‘shared supervision’ model which allows efficient functioning of the markets and is consistent with the deferential and international comity‐based approach the European Union has taken to implementing G20 derivatives reforms.