In its recently published annual peer review report on the supervision of EU CCPs by national competent authorities (NCAs), the European Securities and Markets Authority (ESMA) found that most NCAs have managed to ensure CCPs’ compliance with the European Market Infrastructure Regulation (EMIR). However, the report identified a few shortfalls, to which ESMA has responded with recommendations.

The peer review assessed NCAs against six supervisory expectations: the NCAs’ organisational set-up, the timely receipt of proposed changes to membership rules, assessment of CCPs’ compliance with EMIR requirements, assessment of due diligence of clearing members, review of membership criteria as well as due diligence policies, and ongoing compliance with participation requirements.

ESMA noted that “overall, most chairing NCAs continue to manage CCP colleges in compliance with EMIR”, although there were a few cases where NCAs ensured compliance with certain EMIR deadlines only after the end of the review period.

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The shortfalls

In terms of shortfall, ESMA found potential conflicts of interest at one NCA, and a failure to regularly assess CCPs’ compliance with EMIR requirements at two NCAs. Two other NCAs failed to use internal credit ratings for their participants, thus were considered inadequate in reviewing membership criteria and due diligence policies.

To rectify these weaknesses, ESMA shared a few recommendations in the report, including separating reporting lines up to the board level to reduce conflicts of interest, developing an internal credit rating system to assess the clearing members’ financial soundness, and specifying deadlines for NCAs to receive clearing rules ex-ante so that there’s sufficient time for feedback.