The European Association of CCP Clearing Houses (EACH) has responded to ESMA’s consultation on EMIR 3 Draft RTS on collateral and certain aspects of CCP investment policy. EACH Members particularly welcome that the Draft RTS support a more flexible collateral framework that recognises bank guarantees, allows CCP discretion, and better reflects operational reality.
The key messages that EACH Members would like to convey are the following:
- Concentration limits – EACH Members agree with ESMA’s suggestion that it is not necessary to prescribe specific concentration limits. Concentration limits directly prescribed in the RTS may, in fact, not be sufficiently flexible to deal with risks or developments which arise or are identified in the future. The decisions regarding the calibration of concentration limits should, therefore, lie with the CCP.
- Beneficiaries – EACH Members consider that the Draft RTS should not restrict the beneficiary structure to a single beneficiary. Specifically, we support allowing both CCP as sole beneficiary, and CCP and clearing member as joint beneficiaries. This flexibility is essential to reflect how guarantees are actually used in practice.
- Type of account – In line with the EMIR requirements related to other types of collateral, we suggest removing the requirement mandating the set-up of individually segregated accounts. We respectfully do not see why this type of collateral merits such a distinction and most importantly, we believe the CCP should be able to consider the best way to operationalise the application of bank guarantees as far as accounts are concerned. Suggesting a particular type of account in the RTS runs the risk of bank guarantees remaining unused.
- Identification of the default of a non-financial client – EACH does not support mandating CCPs to implement an internal mechanism to identify the default of a non-financial client. Introducing a CCP level detection mechanism would create a duplication of control processes and operational inefficiencies as well as unnecessary complexity, as CCPs lack access to the necessary real time information streams that clearing members already maintain.
- Provision of critical services for the functioning of a CCP – EACH questions the provisions stating that commercial bank guarantees and bank guarantees issued by a publicly owned bank cannot be issued by “an entity whose business involves providing services critical to functioning of the CCP”. We respectfully believe that this prohibition does not appear legally backed, as the Draft RTS do not provide a definition of “critical services”, and do not clearly demonstrate the risks that such prohibition would solve.
- CCP investment possibilities – EACH very much welcomes ESMA’s proposal to include the EU, the BIS and the IMF as eligible issuers under CCP investment policies. Also, EACH Members would like to put forward some proposals to further expand the range of investment possibilities for CCPs to include, amongst others, derivative contracts to hedge interest rate risk, covered bonds and corporate bonds, as well as remove some unintended incentives and increase flexibility regarding time-to-maturity.
- DLT & Tokenisation – For the full potential of DLT, tokenised collateral and wCBDC to be seen by CCPs, EACH Members see the need for a few targeted corrections to the EMIR at level 2.
- Definition of public bank – EACH broadly agrees with ESMA’s proposed approach to address the current lack of a definition of “public bank” in EMIR. From EACH’s perspective, it is important that any definition of “public bank” is sufficiently clear, objective and operationally workable, while at the same time reflecting the diversity of public banking institutions across jurisdictions.
Please find the full EACH response here.
