The European Association of CCP Clearing Houses (EACH) has responded to the CPMI-IOSCO consultation “A discussion paper on central counterparty practices to address non default losses”. As a general comment, EACH Members overall support the content of the discussion paper and welcome the thorough analysis performed by CPMI-IOSCO and the CCPs that responded to the questionnaire that led to this paper. Similar to previous CPMI-IOSCO work on client clearing, we consider this fact-finding exercise by CPMI-IOSCO very useful, understanding of course the limitations in terms of the number of CCPs covered.
The key messages expressed by EACH in this response are the following:
- European CCPs already comply with the Principles for Financial Market Infrastructures (PFMI) regarding non-default losses through the implementation of the PFMI via the European legislation on CCP Recovery and Resolution (CCP RR).
- Differentiation between non-default events and NDLs – Not all non-default events lead to non-default losses (e.g. a cyber-attack; a custody failure). It is therefore important to differentiate between non-default events and NDLs. In addition, non-default events are not just dealt with through additional resources: some non-default events such as a cyberattack are unlikely to be addressed with additional resources, but they should rather be prevented through the application of ex-ante measures, such as an appropriate cybersecurity policy.
- “Polluter pays principle” – EACH is of the opinion that loss allocation for NDLs should be proportional to the level of responsibility of each stakeholder involved (e.g. CCP owner or CCP user) for bringing risk into the CCP or defining the policies to mitigate those risks.
- Mitigation measures – CCPs already have in place several measures to mitigate the various types of risks that could lead to non-default events, e.g. investment and custody risks, general business & operational risks, as well as risks arising from uncovered liquidity shortfall.
For more information, please see EACH's responses attached or visit our website at www.eachccp.eu
