Tuesday, March 1, 2016

US and EC Agree on a Common Approach to Trans-Atlantic CCPs

Author: David Schwartz J.D. CPA

In a joint statement issued on February 10, 2016, the European Commission (EC) and the U.S. Commodity Futures Trading Commission (CFTC) announced agreement on a common approach regarding requirements for central clearing counterparties (CCPs).  The agreement is the result of a multi-year analysis of differences between the CFTC and EU regulatory requirements. The accord commits the EC and CFTC to base regulations on international rather than parochial principles, and for both the CFTC and the European Commission Services to work together, along with counterparts across the global regulatory community, to develop further these principles and further harmonize the standards to which internationally active CCPs are held.


As the initial step in the accord, the European Commission intends to adopt an equivalence decision with respect to CFTC requirements, which will allow ESMA to recognize U.S. CCPs as soon as is practicable. Once recognized, U.S. CCPs may continue to provide services in the EU while still complying primarily with their own local requirements.


Likewise, the CFTC staff will examine EU regulations and assess their equivalence to U.S. requirements, which will permit EU CCPs to provide services in the U.S. while continuing to comply primarily with their own local requirements. The CFTC will also streamline the registration process for EU CCPs wishing to register in the U.S.


This accord is particularly important to EU banks.  Under the EU’s pending Capital Requirements Regulation, EU banks and their subsidiaries that use a CCP that is not recognized or authorized by EMSA will incur higher capital charges once the Capital Requirements Regulation is put into effect (currently set for June 15, 2016).  This common approach could ease the capital charge burden on EU banks and their subsidiaries by including U.S. CCPs in the ESMA recognition, authorization, and clearance regime.  


EC Commissioner Hill hailed the agreement as "an important step forward for global regulatory convergence. It means that European CCPs will be able to do business in the United States more easily and that US CCPs can continue to provide services to EU companies. It has taken a long time, but it is good news that after more than three years of discussion, we are now able to provide certainty for the marketplace."