Associations Push Back Against “Harmful” EU Clearing Rules

Three financial industry associations have published a statement criticising the European Union’s proposed EMIR 3.0 regulation as “harmful” to Europe’s capital markets.

ISDA, the Alternative Investment Management Association (AIMA), the European Fund and Asset Management Association (EFAMA) and the Futures Industry Association (FIA) say the EU has taken “important steps” towards strengthening the competitive position of Europe’s growing derivatives markets in the EMIR 3.0 proposal, which seeks to make derivatives clearing in the EU more attractive, however, they say that changes should be made.

The EMIR amendments address the efficiency and resilience of financial market infrastructure in the EU. These include proposals to streamline supervisory practices for new EU central counterparty (CCP) product approvals, efforts to facilitate the availability of cross-border intragroup transaction exemptions, and amendments to the Undertakings for Collective Investment in Transferable Securities Directive and Money Market Funds Regulation to incentivise clearing of OTC derivatives.

“Such measures would further reinforce the positive trends already observed in the clearing of euro-denominated contracts at EU CCPs,” the associations state. “A strategy based on organic growth and market-driven solutions would best support the competitiveness of EU CCPs in a global clearing marketplace.

“However, the EC has proposed that firms subject to the EU clearing obligation should have an active account at an EU CCP, while giving the European Securities and Markets Authority (ESMA) the power to define the portion of certain euro- and Polish zloty-denominated contracts that should be cleared through those accounts via secondary regulation<” the statement continues. “Changes to capital rules would reinforce this, making it less commercially viable for EU market participants to clear through CCPs based outside the EU.

“We remain convinced that these measures, as proposed, would be harmful to EU capital markets,” they add. “They would make EU firms less competitive and would have a negative impact on the derivatives market, EU clearing members and their clients, EU investors and savers, and the Capital Markets Union. For EU firms, this would not only hinder their ability to provide best execution to clients, but would also be costly to implement. We believe the EC should substantiate the risk of clearing through tier-two CCPs based outside the EU and provide a robust cost-benefit analysis of the proposed active account requirements.”