Contents
CMU: European Commission toolkit of indicators for monitoring progress
The European Commission has published a staff working document containing a toolkit of indicators for monitoring progress on the Capital Markets Union (CMU). The purpose of the indicators is to monitor progress towards the CMU objectives, to provide a framework for the analysis of capital market developments and to identify areas where existing policies may need to be adjusted or new policies may need to be developed.
The Commission intends to revise the toolkit annually. Its aim is for the toolkit to be a dynamic document, with new indicators added or existing indicators replaced with more suitable ones if more or better data become available.
EMIR: Delegated Regulation extends clearing obligation exemption for pension scheme arrangements for further year
Commission Delegated Regulation (EU) 2021/962 extending the transitional period under Article 89(1) of the European Market Infrastructure Regulation (EMIR) has been published in the Official Journal of the EU (OJ). The Delegated Regulation extends the central clearing exemption for pension scheme arrangements by a further year until 18 June 2022.
It entered into force on 17 June 2021.
EMIR: ESMA statement on FRANDT commercial terms for clearing services
The European Securities and Markets Authority (ESMA) has published a statement on the requirement to provide clearing services for OTC derivatives on terms that are to be considered to be fair, reasonable, non-discriminatory and transparent (FRANDT).
The EMIR Refit Regulation inserted Article 4(3a) into EMIR, introducing an obligation on clearing members and clients providing clearing services to provide those services under FRANDT commercial terms. The deadline for complying with this obligation was 18 June 2021.
ESMA refers to the Delegated Regulation adopted by the European Commission on 2 June 2021, specifying the conditions under which the commercial terms are to be considered to be FRANDT, and acknowledges that, although it cannot be known when the Delegated Regulation will start to apply, this will likely happen after 18 June 2021. This could cause a timing gap during which clearing members and clients would need to provide clearing services in accordance with FRANDT commercial terms before the Delegated Regulation specifying the conditions under which the commercial terms are to be considered to be FRANDT has entered into force.
Neither ESMA nor competent authorities possess any legal power to disapply the legislation or to delay the start of the obligations. Any change to the application of the rules would need to be implemented through EU legislative process.
Accordingly, ESMA encourages market participants to prepare to comply with the upcoming regulatory obligations set out in Article 4(3a) of EMIR. However, ESMA also acknowledges the challenges that certain clearing members and clients may face in doing this before the Delegated Regulation has entered into force. ESMA therefore states that it expects competent authorities not to prioritise their supervisory actions towards clearing members and clients expected to provide clearing services in accordance with FRANDT commercial terms before the date the Delegated Regulation will apply, and to carry out their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner.
EMIR: ESMA launches 2021 CCPs stress test
ESMA has published a final report containing the framework for the 2021 EU-wide stress test exercise for central counterparties (CCPs). The framework document explains the design of the new stress test exercise, including its scope, methodology, expected deliverables and the implementation plan.
The 2021 stress test addresses credit and concentration risks, and uses improved methodologies, including lessons learned from previous exercises, such as assessing the combination of concentration costs and credit losses when liquidating defaulting portfolios or including an intraday exercise for credit. For the first time, the exercise also covers operational risk.
The exercise will cover the 13 CCPs authorised in the EU and the two UK CCPs classified as Tier 2 third country CCPs (LCH Ltd and ICE Clear Europe Ltd). Publication of the final report and results is scheduled to take place in the second half of 2022.
Fallbacks for LIBOR ICE Swap Rates: ISDA consultation
ISDA has launched a consultation on how to implement fallbacks for GBP LIBOR ICE Swap Rate (GBP LIBOR ISR) and USD LIBOR ICE Swap Rate (USD LIBOR ISR). Both rates are published by ICE Benchmark Administration (IBA).
Following the Financial Conduct Authority’s (FCA's) announcement, in March 2021, on the future cessation and/or loss of representativeness of LIBOR, IBA consulted on its decision to stop publishing GBP LIBOR ISR at the end of 2021. Although IBA's consultation did not cover USD LIBOR ISR, ISDA expects the FCA's announcement to have implications for that rate as well.
Accordingly, ISDA is now consulting on the implementation of fallback rates for both swap rates. The proposed fallbacks on which ISDA is consulting are:
- in relation to GBP LIBOR ISR, a SONIA ISR, as suggested in February 2021 by the Working Group on Sterling Risk-Free Reference Rates;
- in relation to USD LIBOR ISR, a spread-adjusted Secured Overnight Financing Rate (SOFR) Swap Rate, as suggested in March 2021 by the Alternative Reference Rate Committee.
Feedback is requested on the consultation by 21 July 2021.
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Authored by Yvonne Clapham
