Securities and Markets Regulatory News, June 2021 # 2 | Hogan Lovells
- CMU: European Commission toolkit on progress monitoring indicators
- EMIR: delegated regulation extends exemption from compensation obligation for pension schemes by one year
- EMIR: ESMA statement on FRANDT trade terms for clearing services
- EMIR: ESMA launches CCP 2021 stress test
- Alternatives for LIBOR ICE exchange rates: ISDA consultation
CMU: European Commission toolkit on progress monitoring indicators
The European Commission has published a staff working paper containing a toolkit of indicators to monitor the progress of the Capital Markets Union (CMU). The purpose of the indicators is to monitor progress towards CMU goals, to provide a framework for analyzing developments in capital markets 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 toolbox every year. Its aim is for the Toolkit to be a dynamic document, with new indicators added or existing indicators replaced with more appropriate indicators if more or better data becomes available.
EMIR: delegated regulation extends exemption from compensation obligation for pension schemes by one 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 one year until June 18, 2022.
It entered into force on June 17, 2021.
EMIR: ESMA statement on FRANDT trade terms for clearing services
The European Securities and Markets Authority (ESMA) has published a declaration on the obligation to provide clearing services for OTC derivatives on terms that must be considered fair, reasonable, non-discriminatory and transparent (FRANDT).
The EMIR Refit Regulation inserted Article 4 (3a) into the EMIR Regulation, introducing an obligation for clearing members and customers providing clearing services to provide these services on FRANDT commercial terms. The deadline to comply with this obligation was June 18, 2021.
ESMA refers to the Delegated regulation adopted by the European Commission on June 2, 2021, specifying the conditions under which trade terms are to be considered FRANDT, and recognizes that while it is not known when the Delegated Regulation will start to apply, it will likely occur after June 18, 2021. This could lead to a time lag during which clearing members and clients should provide clearing services in accordance with FRANDT business terms before the entry into force of the delegated regulation specifying the conditions under which the business terms are to be considered FRANDT. .
Neither ESMA nor the competent authorities have the legal power to revoke the legislation or delay the start of obligations. Any change in the application of the rules should be implemented through an 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 recognizes the challenges that some clearing members and clients may face before the entry into force of the delegated regulation. ESMA therefore indicates that it expects the competent authorities not to prioritize their supervisory actions towards clearing members and clients supposed to provide clearing services in accordance with the FRANDT commercial conditions before the date of application of the delegated regulation, and exercise their risk-based supervisory powers in their day-to-day application of applicable law in this area in a proportionate manner.
EMIR: ESMA launches CCP 2021 stress test
ESMA published a final report containing the framework for the 2021 EU-wide stress testing exercise for central counterparties (CCPs). The framework document explains the design of the new stress testing exercise, including its scope, methodology, expected deliverables, and 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 on liquidation portfolios in default or with an intraday credit period. For the first time, the exercise also covers operational risk.
The exercise will cover the 13 central counterparties authorized in the EU and the two UK central counterparties classified as level 2 third country central counterparties (LCH Ltd and ICE Clear Europe Ltd). The publication of the final report and results is scheduled for the second half of 2022.
Alternatives for LIBOR ICE exchange rates: ISDA consultation
ISDA has launched a consultation on how to implement fallback solutions for GBP LIBOR ICE exchange rate (GBP LIBOR ISR) and USD LIBOR ICE exchange rate (USD LIBOR ISR). Both rates are published by ICE Benchmark Administration (IBA).
Following the announcement by the Financial Conduct Authority (FCA) in March 2021 on the future termination and / or loss of representativeness of LIBOR, IBA consulted on its decision to cease publishing GBP LIBOR SRI at the end of 2021 Although the IBA consultation did not hedge USD LIBOR SRI, ISDA expects the FCA announcement to have implications for this rate as well.
As a result, ISDA is now consulting on the establishment of fallback rates for both swap rates. The proposed fallback solutions that ISDA consults on are:
- with respect to GBP LIBOR ISR, a SONIA ISR, as suggested in February 2021 by the Pound Sterling Risk-Free Reference Rate Working Group;
- versus LIBOR ISR USD, a spread-adjusted Overnight Guaranteed Funding Rate (SOFR) swap rate, as suggested in March 2021 by the Alternative Reference Rate Committee.
Feedback on the consultation is requested before July 21, 2021.