[author: Sejal Patel]
On April 27, 2018, the European Securities and Markets Authority (“ESMA“) published a letter from Steven Maijoor, ESMA Chair, to Oliver Guersent, European Commission Director General, Financial Stability, Financial Services and Capital Markets Union, relating to exemptions from the financial obligations under Articles 41 and 42 of EMIR (the Regulation on OTC derivative transactions, central counterparties and trade repositories) (Regulation 648/2012). The letter can be found here.
In the letter, Mr. Maijoor explains that, during its March 2018 meeting, the ESMA Board of Supervisors discussed whether a central counterparty (“CCP“) can exempt certain clearing members (typically public entities such as government entities, central banks and supranational entities) from the financial obligations under Articles 41 and 42 of EMIR. Under these provisions, the CCP is to be provided with initial margin and default fund contributions.
ESMA has noted different practices across EU CCPs. It has also noted different interpretations across the relevant national competent authorities (“NCAs“) of “credit exposures” from clearing members that are public entities among those mentioned above. In particular, NCAs, believing that these public entities should be exempt from EMIR, have authorised their CCPs to consider the zero risk-weight envisaged under the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) for these entities to strike down their respective credit exposures. This implies that no initial margins and no default fund contributions are due from such clearing members. However, other EU CCPs apply no exemptions for this category of clearing member.
ESMA believes that this issue needs to be clarified to ensure supervisory convergence and a level playing field across EU CCPs. As this issue relates to the scope of EMIR, it asks the Commission to clarify whether CCPs are allowed not to collect margin and default fund contributions from these public entities and, if so, whether a specific amendment of EMIR (in the context of the ongoing review process) would be appropriate.
