Central clearing is essential for financial stability: it reduces systemic risk in the financial sector and increases market transparency.
As many services are provided by UK-based CCPs, the European Commission is concerned that the Brexit could lead to long-term disruption and instability in the EU financial system. In order to reduce market participants' exposure to UK CCPs and to avoid a sudden disruption of the services they provide to the EU system, the Commission adopted a time-limited equivalence determination for UK CCPs on 1 September 2021. This gave financial market participants 18 months to reduce their exposure to these entities - until 30 June 2022.
During 2021, the Commission's consultations with industry and key stakeholders showed that the June 2022 deadline was too short to achieve strong and attractive central clearing capacity in the EU. Following the announcement by Commissioner McGuinness of a proposal to extend the equivalence decision on 10 November 2021, the European Commission last week adopted a decision to extend equivalence for UK CCPs until 30 June 2025. It also launched a public consultation and call for evidence on how to expand central clearing activities in the EU and improve the attractiveness of EU CCPs.
The European Commission has indicated its intention to develop ways to propose measures to reduce the EU's dependence on systemic CCPs from third countries, and to improve the attractiveness of EU-based CCPs while strengthening their supervision. Strengthening the capacity of EU CCPs and reinforcing the Capital Markets Union is highly desirable for a strong, stable and attractive European financial system.
By Helena Freitas