REGULATORY SCRUTINY BOARD OPINION EMIR Targeted review

EUROPEAN COMMISSION
16.9.2022
SEC(2022) 697
REGULATORY SCRUTINY BOARD OPINION
{COM(2022) 697-698}
{SWD(2022) 697-698}
EMIR Targeted review
Offentligt
KOM (2022) 0698 - SEK-dokument
Europaudvalget 2022
________________________________
This opinion concerns a draft impact assessment which may differ from the final version.
Commission européenne, B-1049 Bruxelles - Belgium. Office: BERL 08/010. E-mail: regulatory-scrutiny-board@ec.europa.eu
EUROPEAN COMMISSION
Regulatory Scrutiny Board
Brussels,
RSB
Opinion
Title: EMIR Targeted review
Overall opinion: POSITIVE WITH RESERVATIONS
(A) Policy context
The European Market Infrastructure Regulation (EMIR) aims at reducing systemic
financial risk related to trading and clearing derivatives. Central counterparties (CCPs)
place themselves between the seller and buyer in the market and handle positions,
including the calculation of net obligations (netting), which ensures that financial
guarantees/collateral is available to secure exposures.
The United Kingdom is the main location for clearing euro-denominated derivatives, with
a market share of more than 90%. The European Central Bank (ECB) and European
Securities and Markets Authority (ESMA) has identified exposure to systemic clearing as a
significant financial stability risk for the EU. The UK systemic actors are now outside the
EU, but benefit form an equivalence decision that expires in June 2025.
This initiative aims at amending EMIR to mitigate EU financial stability risks by reducing
the overreliance on third country CCPs, by making EU CCPs more attractive and
enhancing supervision of cross border risks.
(B) Summary of findings
The Board notes the additional information provided in advance of the meeting and
commitments to make changes to the report.
However, the report still contains significant shortcomings. The Board gives a
positive opinion with reservations because it expects the DG to rectify the following
aspects:
(1) The report does not clearly explain what success would look like and how it will
be effectively monitored.
(2) The range of options considered is not comprehensive.
(3) The report does not sufficiently bring out the rationale behind, and envisaged
design of, key measures to be dealt with through implementing regulation. It is
not clear enough on the criteria and parameters that will frame their
development.
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(C) What to improve
(1) The report should be clearer on the problem definition. It should more explicitly
describe, and substantiate with evidence, how the financial stability risk of the EU
differs to the risk that other global actors face. It should better explain the risk for the
EU of depending to such a large extent on clearing activities subject to regulation and
supervision by another jusrisdiction as well as its importance in terms of strategic
autonomy. It should also better discuss the risks and trade-offs related to a CCP market
shift towards the EU, such as market fragmentation, EU capacity built-up or potential
concentration within the EU. Lastly, the main report should clarify (with details in the
annex) what previous evaluations back up the EMIR targeted review and how the
‘evaluate first’ principle will be respected.
(2) The report should give a more detailed idea of what success would look like for this
initiative. For example, it should provide an indication of how much clearing activity
would need to be carried out by EU CCPs for the initiative to fulfil its objectives. It
should clarify possible benchmarks for fostering the build-up of a credible clearing
alternative within the EU and better explain the envisaged (cross-sectoral) monitoring
framework. It should express the objectives in more specific terms.
(3) The report should be clearer on the full range of options considered. It should explain
(if only in the discarded option section) why certain options (such as global
coordination or a extension of equivalence) have not been considered at this stage.
(4) The report should better present the envisaged implementing framework and the
reasoning behind it. The envisaged allocation of responsibilities between (level 1) basic
legislation, (level 2) implementing regulation and related ESMA powers (e.g.
Regulatory Technical Standards) should be sufficiently clear. The report should present
the criteria and parameters that will frame the development and application of the
implementing and ESMA supervisory framework (e.g. methodology for calculation of
and minimum level of activity). Furthermore, the report should, to the greatest extent
possible, outline the impact of the measures that can be taken now, and describe how
further impact, cost-benefit and proportionality analysis will be provided for in the
(level 2) implementing regulation. Finally, the report should be clear on the envisaged
(legal) delivery instrument(s) for the measures under the preferred option.
(5) The report should more clearly outline the scale and consequences of the expected
short to mid-tem costs on market participants. It should discuss how big the risk of
unintended consequences (including on trade) is and how these could be mitigated. It
also should more consistently present and distinguish between administrative and
adjustment costs (and cost savings). It should better assess the synergetic effect
between complementary measures and better justify the proportionality of the preferred
option.
The Board notes the estimated costs and benefits of the preferred option(s) in this
initiative, as summarised in the attached quantification tables.
Some more technical comments have been sent directly to the author DG.
3
(D) Conclusion
The DG must revise the report in accordance with the Board’s findings before
launching the interservice consultation.
If there are any changes in the choice or design of the preferred option in the final
version of the report, the DG may need to further adjust the attached quantification
tables to reflect this.
Full title EMIR Targeted review
Commission proposal for a Regulation amending Regulation
(EU) No 648/2012 of the European Parliament and of the
Council of 4 July 2012 on OTC derivatives, central
counterparties and trade repositories (EMIR)
Reference number PLAN/2022/6
Submitted to RSB on 20/07/2022
Date of RSB meeting 14/09/2022
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ANNEX: Quantification tables extracted from the draft impact assessment report
The following tables contain information on the costs and benefits of the initiative on
which the Board has given its opinion, as presented above.
If the draft report has been revised in line with the Board’s recommendations, the content
of these tables may be different from those in the final version of the impact assessment
report, as published by the Commission.
1. Summary of costs and benefits
I. Overview of Benefits (total for all provisions) – Preferred Option
Description Amount Comments
Direct benefits
Compliance costs
reductions
Ongoing reduction of compliance costs for
CCPs: total ongoing cost reduction of ca.
EUR 3 million to ca. EUR 13 million
(assuming 10 Article 15 or 49 procedures
per year for all EU CCPs) with the
following breakdown:
 Reduction of costs related to legal
opinions: potential saving between
EUR 10 000 and EUR 250 000
(depending on the procedure and the
fees charged) per procedure.
 Reduction of costs of external
consultants for an art. 15 or 49
procedure: savings between
EUR 200 000 and EUR 350 000 per
procedure.
 Reduction of costs of hiring staff for
these procedures (assuming a 1-year
contract): savings of approx.
EUR 1 300 per day over 1 year.
 Reduction of staff needed for a given
procedure: approx. 1.6 FTEs for a
given procedure over 1 year, costing
approximately EUR 300 000.
This benefit stems from the simplified
approval procedures and replacement of
ex-ante approval by ex-post approval
for some changes. Standardised
documents and greater clarity on what
needs to be submitted will require less
substantive and legal work. Greater
clarity is also expected limit the needed
interaction with supervisors (i.e.
currently duplicative and contradicting
rules and requests).
Improved capacity for
oversight and
management of financial
stability risks and
supervisory capacity of
ESMA, central banks of
issue and national
supervisors
No estimate available. Due to enhanced and more efficient
cooperation between ESMA, central
banks of issue and national supervisors,
supervisors will be able to better
monitor relevant financial stability
risks. Notably, clarification of roles of
different supervisory entities, reduction
of duplications and improved
knowledge sharing and more frequent
cooperation will contribute to this
effect together with greater clarity as to
minor vs major changes in activities
and models efficiencies. Central banks
and ESMA would benefit from having
a clearer overview on EU CCPs and
5
relevant financial stability risks, which
is important for their role.
Indirect benefits
Lower financial stability
risks
Societal benefit. No estimate available. A positive impact on financial stability
is expected to arise (i) by reducing
concentration rates and over-reliance on
non-EU CCPs (ii) reducing frictional
costs in case of developments or
problems with a third-country CCP
which would require a massive shift of
positions towards EU CCPs, and (iii)
by ensuring that EU supervisors are
given adequate powers and monitoring
capabilities.
Benefits for the single
market of enhanced
supervisory cooperation
and convergence
Societal benefit. No estimate available. Strengthened role for EU authorities in
the supervisory framework and
streamlined cooperation. Ongoing
benefits in terms of higher supervisory
standards for CCPs and financial
stability
Enhanced offer
possibilities for EU CCPs
and reduced opportunity
costs. Market participants
benefit from increased
competition between EU
and third-country CCPs
and greater clarity
The opportunity costs associated with long
and burdensome procedures are difficult to
estimate but translate into lost business,
impact on the CCP’s reputation (loss of
credibility) and missed revenues.
Stakeholder feedback points at complex and
unclear supervisory requirements as a
significant hurdle to bringing new products
to the market and thus the attractiveness of
EU CCPs, hence the impact of their removal
is likely moderate to large.
Faster and clearer procedures for
launching new products and changing
risk models are expected to result in an
ongoing increase in EU CCPs’ capacity
to bring new products to the market and
change risk models. This should lead to
greater choice for market participants
(e.g. more CCPs to choose from to
clear specific derivatives). Greater
clarity for market participants from
standardised documents and shorter
time for supervisors to approve
changes. Cost savings for EU CCPs
may also be potentially passed on to
clearing members and clients.
More opportunities for
clearing members and
clients
No estimate available, depending on market
developments and choices of EU CCPs
regarding launch of new products.
This initiative will enable EU CCPs to
bring more products to the market and
make their product offer more
attractive, and will encourage EU
clearing members and clients to clear
with EU CCPs. Clearing members and
clients are thus expected to have more
choices for clearing their trades and can
potentially benefit from increased
competition.
Administrative cost savings related to the ‘one in, one out’ approach*
Compliance cost
reductions (described
above)
In total, approximately EUR 3-13 million
EUR per year (described above)
As described above. These cost savings
relate to a simplification of
administrative obligations at EU level
(of existing EMIR rules) and hence all
related reductions in expenses count
under “one in, one out”.
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II. Overview of costs – Preferred option
Businesses – EU CCPs Businesses – EU clearing
members and clients
Administrations
(supervisors, ESMA)
One-off Recurrent One-off Recurrent One-off Recurrent
Supply-
side
measures
Direct
adjustment costs
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Moderate
cost of
setting up
new IT
tools
Operating
new IT
tools; less
time to
assess
proposed
actions
Direct
administrative
costs
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Direct
regulatory fees
and charges
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Direct
enforcement
costs
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Indirect costs
No cost
impact
identified
Costs of
setting up and
operating new
IT tools by
supervisors
may be
reflected in
increased
supervision
fees1
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Demand-
side
measures
Direct
adjustment costs
No cost
impact
identified
No cost
impact
identified
Costs for
clearing
members and
clients to
reduce
excessive
exposures or
increase
capital to
meet higher
requirements
(depending on
the precise
calibration
and their
choices2
)
Depending on
the precise
calibration
and choice of
individual
companies3
,
there would
be higher
costs of
clearing (e.g.
loss of netting
benefits)4
and/or,
opportunity
costs of
holding
No cost
impact
identified
No cost
impact
identified
1
But potential savings from streamlined cooperation would have an opposite effect which would (partially or
even fully) mitigate this.
2
Magnitude of these costs cannot be reliably assessed as they depend on the precise calibration of the
measures which will be established through delegated/implementing acts (which will consider cost
7
higher capital
to meet
requirements
for non-EU
CCP
exposures.
Direct
administrative
costs
No cost
impact
identified
No cost
impact
identified
Paperwork
related to
opening an
account
(expected to
be
negligible)5
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Direct
regulatory fees
and charges
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Direct
enforcement
costs
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Indirect costs
No cost
impact
identified
Possible costs
of reporting
on more
accounts
(expected to
be negligible)
No cost
impact
identified
Clients may
face a small
increase in
clearing fees
when the
clearing
member
maintains
multiple
accounts6
No cost
impact
identified
More
enforcement
may be
needed as
EU business
volumes
grow
Supervisi
on
Direct
adjustment costs
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Modificati
on of
procedures
and tools
to the new
supervisor
y
cooperatio
n
framework
Resource
implications
of
cooperation
in joint
supervisory
teams and to
the joint
cross-border
monitoring
system (e.g.
staff,
meetings)
implications to the degree possible) and on choices of companies. Hence it cannot be determined upfront and
is likely to vary by company depending on its specific situation.
3
Magnitude of these costs cannot be reliably assessed as they depend on the precise calibration of the
measures which will be established through delegated/implementing acts (which will consider cost
implications to the degree possible) and on choices of companies. Hence it cannot be determined upfront and
is likely to vary by company depending on its specific situation.
4
Expected to be partially mitigated over the medium to long term by market adaptation
5
As some clearing participants (e.g. clients) that do not already have an account at an EU CCP will have to
open one.
6
These costs are expected to decrease over time as the market adapts to the new situation by moving positions.
8
Direct
administrative
costs
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Additional
paperwork
related to
modificati
on of tools
and
procedures
(likely
low)
Additional
paperwork
related to
enhanced
cooperation
Direct
regulatory fees
and charges
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Direct
enforcement
costs
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Indirect costs No cost
impact
identified
Increased
costs of
supervision
may be passed
on to CCPs
via increased
supervision
fees
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
No cost
impact
identified
Costs related to the ‘one in, one out’ approach
Total
Direct
adjustment costs
No cost
impact
identified
No cost
impact
identified
.
Indirect
adjustment costs
No cost
impact
identified
Increased
costs of
supervision
may be passed
on CCPs via
increased
supervision
fees
No cost
impact
identified
Clients may
face an
increase in
clearing fees
when the
clearing
member
maintains
multiple
accounts.7
Administrative
costs (for
offsetting)
No cost
impact
identified
No cost
impact
identified
Paperwork
related to
opening an
account
(expected to
be
negligible)8
No cost
impact
identified
7
These costs are expected to decrease over time as the market adapts to the new situation by moving positions.
8
As some clearing participants (e.g. clients) that do not already have an account at an EU CCP will have to
open one.
Electronically signed on 16/09/2022 14:21 (UTC+02) in accordance with Article 11 of Commission Decision (EU) 2021/2121