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The European Commission has adopted an equivalence decision determining that the US Securities and Exchange Commission (SEC) regulatory regime for US central clearing counterparties (CCPs) is equivalent to EU rules.
The decision is an important first step for US CCPs registered with the SEC to be recognised in the European Union as it will allow the US CCPs to apply for recognition by the European Securities and Markets Authority (ESMA).
Once recognised by ESMA, US CCPs will be able to provide central clearing services in the EU complementing the existing equivalence decision for US CCPs regarding the US Commodity Futures Trading Commission (CFTC), which was adopted in 2016.
The decision is conditional and applies only to SEC-regulated covered clearing agencies.
In order to offer services in the EU, US CCPs will have to implement rules with respect to certain risk management requirements such as liquidation periods and anti-procyclicality measures.
The responsibility for the supervision of CCPs in the US is shared between the SEC and the CFTC, and the new equivalence decision applies to US CCPs that are registered with the SEC.
For the commission to adopt an equivalence decision, a third-country regime has to fulfil three conditions laid down in the European Market Infrastructure Regulation (EMIR).
The European Commission explains that first means CCPs authorised in the third country must comply with legally binding requirements that are equivalent to requirements laid down in EMIR.
Second, CCPs in the third country must be subject to effective supervision on an ongoing basis, and thirdly, the legal framework of the third country must provide for an effective equivalent system for the recognition of foreign CCPs.
This equivalence decision determines that the legal and supervisory arrangements applicable to US CCPs registered with the SEC can be considered to be equivalent to requirements laid down in EMIR.
Mairead McGuinness, commissioner responsible for financial services, financial stability and the Capital Markets Union, comments: “This decision is a significant first step in the process of recognising US CCPs registered with the US SEC in the EU.”
“We look forward to continued good cooperation between EU institutions and agencies, and the US Securities and Exchange Commission,” McGuiness says.
Allison Herren Lee, acting chair of the SEC, says: “The EC’s decision is an important first step on the road to providing greater regulatory certainty for CCPs and their members on both sides of the Atlantic.”
According to Lee, in making its determination, the EC considered the legal and supervisory arrangements applicable to CCPs under securities laws administered by the SEC, regulations promulgated by the SEC, and internal CCP rules approved by the SEC under its self-regulatory organisation (SRO) rule filing process.
“The EC concluded that the outcome of the SEC’s legal and supervisory arrangements and the SRO rules is equivalent to the requirements under applicable European Union law, to the extent these US requirements meet certain risk mitigation standards specified in the EC’s,” Lee adds.
Currently, there is no equivalence granted for UK financial services, which marks one of the longer-term effects of a no-deal Brexit.
Industry experts currently suggest that the trade and cooperation agreement the UK signed with the EU just before Christmas does not provide certainty with regards to the outstanding areas of equivalence which still remain unresolved between the UK and EU.
