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Central Counterparties (CCPs) Recovery and Resolution

Central Counterparties (CCPs) Recovery and Resolution

Recovery and Resolution for CCPs is the last missing piece in the puzzle of implementing the G20 objectives. It will complement the high standards implemented through EMIR and confirm the CCPs' role as a neutral risk manager for financial markets.

Objective

The objective of Recovery and Resolution for CCPs is to define measures to be taken in extreme but plausible events of financial distress and ensure the continuity of clearing of key critical contracts, while excluding the use of public resources and preserving financial stability.

Timeline

The European Commission published the legislative proposal in November 2016. In June 2020, the EU institutions have reached a political agreement on a Recovery and Resolution framework for CCPs, after putting the file on pause to finish first the EMIR Reviews launched in parallel. The final legislative text was published in the EU Official Journal in January 2021 and entered into force on 12 February 2021. The new CCP RR rules will apply as of 12 August 2022.

ESMA is conducting important Level 2 work to specify the file’s application, especially on the No Creditor Worse Off (NCWO) counterfactual and the 2nd Skin in the Game (SITG), until 12 months after entry into force of the Regulation.

In March 2020, the German legislative passed a national Recovery and Resolution framework for CCPs which applied as from September 2020. The German rules will be superseded once the European framework 12 months after its entry into force.

At the international level, the FSB is also still active in the discussion around financial resources to support CCP resolution and the treatment of CCP equity in resolution. The FSB published its report in November 2020 and will continue to work with other international standard-setting bodies on the adequacy of CCPs’ equity in resolution in the following years. However, with the new EU legislation applicable as of mid- 2021, the EU is one of the first jurisdictions to have a fully-fledged recovery and resolution framework, setting the benchmark at global level.

CCPs Recovery and Resolution: the highlighted parts of the value chain are affected


Political agreement on CCP Recovery & Resolution

After three years of negotiations, the EU institutions have reached a political agreement on a European Recovery and Resolution framework for CCPs to complement the G20 reforms. The final outcome preserves the incentive structure and loss mutualisation function of CCPs therefore ensuring that the burden is not passed on to taxpayers and the broader society.

DBG welcomes the new EU framework on CCP RR

Erik Müller, CEO of Eurex Clearing, shares his views on the new EU-rules on CCP RR in an article which was first published at the Eurofi Magazine 2020 in Berlin. CCP RR completes the financial stability agenda - but more remains to be done. 

New national law to strengthen resilience of CCP ecosystem

Viktoria Hackenberg and Marco Winteroll of Regulatory Analysis explain how the German Sanierungs- und Abwicklungsgesetz für CCPs strengthens financial stability and minimises possible costs for the taxpayer until the EU rules will kick in.

Erik Müller: financial stability without taxpayer bail-outs

In an op-ed article in the Börsen-Zeitung, Erik Müller, CEO of Eurex Clearing AG, explains how recovery and resolution regulation for central counterparties can help when done right.

Video: new EU rules for safer central counterparties (CCPs)

The European Commission has published this interesting explanatory video on the role of CCPs as well as on recovery and resolution legislation.

CPMI-IOSCO on recovery of FMIs

The purpose of this report is to provide guidance for financial market infrastructures (FMIs) and authorities on the development of recovery plans.

Effective resolution regimes and policies

The Key Attributes of Effective Resolution Regimes for Financial Institutions (the ‘Key Attributes’ KA) set out the core elements that the Financial Stability Board (FSB) considers to be necessary for an effective resolution regime.

European Commission releases proposal

The European Commission released its proposal for a regulation on a framework for the recovery and resolution of central counterparties. The proposal complements risk reduction measures and EMIR. It shall close the gap in the financial regulatory architecture, as CCPs lie at the heart of all financial systems.

Legal basis

Find the most recent legal text on this regulation here.