Commission Delegated Regulation (EU) 2023/451 of 25 November 2022 specifying the factors to be taken into consideration by the competent authority and the supervisory college when assessing the recovery plan of central counterparties (Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) 2021/23 of the European Parliament and of the Council of 16 December 2020 on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, (EU) No 600/2014, (EU) No 806/2014 and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132 (1), and in particular Article 10(12) thereof,

Whereas:

(1) When taking into consideration a CCP’s capital structure and risk profile to assess the recovery plan of that CCP, competent authorities and supervisory colleges should consider whether the recovery plan is appropriate to ensure the adequacy of the CCP’s financial resources, including where necessary to ensure a timely recapitalisation of the CCP, the replenishment of its pre-funded resources, and to address any funding and liquidity gap.

(2) When taking into consideration a CCP’s default waterfall to assess the recovery plan of that CCP, competent authorities and supervisory colleges should consider whether the structure of that CCP’s default waterfall and loss-allocation rules are adequate to sustain all envisaged default losses scenarios, and whether those loss-allocation are legally enforceable.

(3) When taking into consideration the complexity of a CCP’s organisational structure to assess the recovery plan of that CCP, competent authorities and supervisory colleges should consider whether that CCP’s ownership structure and governance arrangements are sufficiently clear and practicable to confirm the recovery plan’s feasibility and ensure a smooth implementation of the recovery measures.

(4) When taking into consideration the substitutability of a CCP’s activities to assess the recovery plan of that CCP, competent authorities and supervisory colleges should consider how that CCP’s recovery plan envisages that part or all of the CCP’s clearing services could be provided by other authorized Union CCPs or recognized third-country CCPs to mitigate the risk of disruption of services that are essential to the real economy and to financial stability.

(5) When taking into consideration a CCP’s risk profile to assess the recovery plan of that CCP, competent authorities and supervisory colleges should consider the business features and the governance and legal risks of that CCP to assess whether that CCP is in a position to undertake the measures set out in the recovery plan in a swift and efficient manner, regardless of the CCP’s specificities.

(6) When taking into consideration a CCP’s preparedness to face stress that would endanger the CCP’s viability with the aim of assessing the recovery plan of that CCP, competent authorities and supervisory colleges should consider the adequacy of scenarios and indicators included in the recovery plan in light of that CCP’s specificities to ensure the credibility of the CCP’s level of preparedness to face such stress.

(7) When taking into consideration a CCP’s business model to assess the recovery plan of that CCP, competent authorities and supervisory colleges should consider the suitability of the identification of critical functions in that recovery plan and how the recovery plan envisages to undertake a sale of assets or business lines to anticipate the effects of the activation of the recovery plan on clearing members, their clients and indirect clients, and outsourcing arrangements.

(8) When taking into consideration the impact of a CCP’s recovery plan on certain entities in relation to communication, competent authorities and supervisory colleges should consider the adequacy of the CCP’s communication and disclosure procedures to share information as transparently as possible and manage potentially negative market reactions to the CCP’s difficulties.

(9) When taking into consideration the impact of a CCP’s recovery plan on clearing members, competent authorities and supervisory colleges should consider how that CCP evaluates the complexity of its clearing membership to anticipate the impact of the recovery plan on clearing members’ clients and indirect clients, and consider their contractual obligations in any recovery scenario.

(10) When taking into consideration the impact of a CCP’s recovery plan on linked market infrastructures, competent authorities and supervisory colleges should consider whether the implementation of that CCP’s recovery measures may affect the operations of a linked infrastructure to properly evaluate the impact of the resolution plan in terms of interoperability effects.

(11) When taking into consideration the impact of a CCP’s recovery plan on financial markets served by the CCP, including trading venues, competent authorities and the supervisory colleges should consider any link with that CCP’s trading venues to anticipate any material impact of the recovery measures on the ability of a trading venue to process trades or establish prices.

(12) When taking into consideration the impact of a CCP’s recovery plan on the financial system of any Member State and the Union as a whole, competent authorities and the supervisory colleges should evaluate the impact of recovery measures on entities with material links to that CCP, clearing members and FMIs to consider any contagion risk that may stem from the activation of the recovery plan. They should also consider the appropriateness of the incentives introduced by the recovery plan to ensure that the recovery measures and loss allocation tools are likely to optimise the likelihood of a successful recovery, with a fair and proportionate allocation of costs among that CCP’s shareholders, clearing members and their clients.

(13) This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Securities and Market Authority (‘ESMA’).

(14) ESMA developed the draft technical standards on which this Regulation is based in cooperation with the European System of Central Banks and the European Systemic Risk Board. ESMA conducted open public consultations on such draft regulatory technical standards, analysed the potential related costs and benefits and requested the advice of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (2),

HAS ADOPTED THIS REGULATION:

Article 1

Assessment of a CCP’s capital structure and financial risk

When assessing the adequacy of a CCP’s recovery plan in respect of that CCP’s capital structure and financial risk, competent authorities and supervisory colleges shall consider all of the following factors:

(a) whether there are any inconsistencies between the CCP’s capital structure and the recovery measures designed to ensure timely recapitalisation of the CCP should its capital level fall below the notification threshold or capital requirements;

(b) whether the recovery plan duly accounts for the additional amount of pre-funded dedicated own resources referred to in Article 9(14) of Regulation (EU) 2021/23;

(d) whether the measures in the recovery plan are duly tested to allow for allocation and price discovery;

(e) whether the measures in the recovery plan and the tools referred to in point (c)(iv) are sufficiently reliable and promptly available in case of both idiosyncratic and system-wide recovery events;

(f) whether the recovery plan sets out arrangements to address both funding gaps and temporary liquidity gaps, and specifies the liquidity arrangements available to the CCP;

(h) whether the recovery plan envisages to use standing central bank facilities and clearly identifies the assets that would be expected to qualify as collateral under the terms of the central bank facility.

Article 2

Assessment of a CCP’s default waterfall

Competent authorities and supervisory colleges shall assess the adequacy of a CCP’s recovery plan in respect of that CCP’s default waterfall by considering all of the following factors:

(a) whether the default waterfall and different paths of loss propagation are clearly specified and whether the consequences of any losses are modelled in accordance with the rules allocating those losses, including arrangements between the CCP and its clearing members and the overall risk management framework of the CCP, such as the CCP rulebook;

(b) whether relevant legal risks have been assessed and addressed in ensuring the enforceability of the waterfall, including with regard to clearing members that are domiciled in third-country jurisdictions.

Article 3

Assessment of the organisational structure of a CCP

Competent authorities and supervisory colleges shall assess the adequacy of a CCP’s recovery plan in respect of the level of complexity of the organisational structure by considering all of the following factors:

(a) whether the ownership structure of the CCP might affect the recovery plan;

(b) how the ownership structure of the CCP is reflected in incentive structures or decision processes of the CCP;

(d) whether the links of the CCP to any same-group entity are sufficiently assessed to ensure that any risk of contagion that may arise in the event of any group company being subject to financial constraints or being in default is accounted for, and assessing how those links might impact the applicability of the measures in the recovery plan;

(e) whether the policies and procedures governing the approval of the recovery plan and the identification of the persons in the organisation responsible for drawing up and implementing the recovery plan are suitable, clear and practicable;

(f) whether the recovery plan is consistent with the corporate governance structure of the CCP and the CCP’s decision processes and internal governance;

(g) whether the complexity of the CCP’s internal organisation might be a hindrance to timely actions or whether processes are likely to run efficiently with clear decision-making chains and clearly defined responsibilities;

(h) whether the recovery plan is clear and practicable in procedures and action plans, including procedures for decision processes, detailed contact sheets from any person relevant to the recovery plan process, remote access abilities and accessibility to decision makers, and whether the recovery plan has procedures to access key persons both on and off-site;

(i) whether the recovery plan is effectively included, where required, in the operating rules of the CCP;

(j) whether the CCP has in place appropriate rules and procedures to test its recovery plan with its clearing members on a regular basis, and where possible, to identify their clients and indirect clients.

Article 4

Assessment of the substitutability of a CCP’s activities

Competent authorities and supervisory colleges shall assess the adequacy of a CCP’s recovery plan in respect of the substitutability of that CCP’s activities by considering all of the following factors:

(a) whether the recovery plan has taken into account whether other CCPs authorised or recognised under Article 14 or Article 25 of Regulation (EU) No 648/2012 of the European Parliament and of the Council (3) provide some or all of the clearing services provided by the CCP;

(b) the extent to which the recovery plan provides details, using the information available to the CCP, on how clearing services provided by another CCP have been identified and whether such identified services by other CCPs are established services or newly established clearing services;

Article 5

Assessment of the risk profile of a CCP

(a) whether the CCP’s recovery plan overall encompasses and provides appropriate measures to address different types of risk, and plausible combinations thereof, which might require the use of the recovery tools referred to in Article 1, point (c)(iv);

(b) whether the risk of disruptions originating both at the CCP and in other entities and service providers to which the CCP is exposed, including clearing, investment, custody and payments, is assessed and mitigated in the recovery plan;

(c) whether the recovery plan takes into account the nature, size and complexity of the CCP’s business and how those elements are reflected in the measures proposed by the CCP;

(d) whether the CCP can independently apply the recovery plan without interference from other entities in the same corporate group and, where possible, whether any spill-over effects on other group entities and financial interdependencies are clearly identified;

(e) whether the recovery plan takes into account environmental risks and the risk of cyber-attacks that could lead to a significant deterioration of the financial situation of the CCP and any other risks identified in stress-test exercises performed in accordance with Article 49(1) of Regulation (EU) No 648/2012 and Article 21(2) of Regulation (EU) No 1095/2010, where relevant for the recovery plan;

(f) whether the legal risks have been assessed in the recovery plan, and in particular whether all measures in the recovery plan are legal, valid, binding and enforceable;

(g) whether the arrangements, agreements and contracts, including the operating rules of the CCP and agreements with service providers, are clear, legal, valid, binding and enforceable and actionable to ensure that the risks of legal challenges and lawsuits are managed and minimised;

(h) whether legal opinions have been collected, where needed, to evidence the legal validity and enforceability of the recovery measures and agreements, in particular where the counterparty to the agreement is located in a third country;

(i) whether, where the board of the CCP has decided not to follow the advice of the risk committee when approving the CCP’s recovery plan, the reason provided by the CCP both to the members of the risk committee and to its competent authority in accordance with Article 9(18) of Regulation (EU) 2021/23, is adequate.

(a) the type of financial instruments cleared or to be cleared by the CCP;

(b) the financial instruments cleared or to be cleared by the CCP that are subject to the clearing obligation referred to in Article 4 of Regulation (EU) No 648/2012;

(c) the average values cleared by the CCP over one year, per type of product and by currency both in absolute terms, as well as relative terms to the CCP’s capital, at the level of each clearing member and, where possible, of each client;

(d) whether the transactions cleared by the CCP are executed on an EU trading venue, on a third-country trading venue considered equivalent in accordance with Article 2a of Regulation (EU) No 648/2012, or an OTC;

(e) the Member States where the CCP provides, or intends to provide, services and other cross-border activities of the CCP.

Article 6

Assessment of the risk profile of the CCP in relation to the CCP preparedness

Competent authorities and supervisory colleges shall assess a CCP’s recovery plan’s adequacy in respect of the timeline, scenarios and indicators contained in the recovery plan. When performing that assessment, competent authorities and supervisory colleges shall consider all of the following factors:

(b) whether the framework of quantitative and qualitative indicators included in the recovery plan identifies the circumstances in which measures in the recovery plan are to be taken.

Article 7

Assessment of the risk profile of the CCP in relation to the business model

Competent authorities and supervisory colleges shall assess a CCP’s recovery plan’s adequacy in respect of the operational risk of the business model of that CCP by considering all of the following factors:

(a) whether the critical functions of the CCP are properly identified;

(c) where the CCP clears several products, whether the CCP has considered the potential of splitting a sale between products, and whether any impediments have been identified as an effect of such a split or if any other effect on the recovery plan has been identified by such a split sale;

(d) whether the number and importance of different links with entities, including liquidity providers, settlement banks, platforms, custodians, investment agents, banks or service providers have been assessed in the recovery plan and how such links impact the recovery measures and the effectiveness of the recovery plan;

(e) whether the significance or materiality of each link has been assessed, including in terms of volumes cleared and the financial exposures under those arrangements;

(f) whether any outsourcing arrangements that cover part of the CCP’s core business have been sufficiently assessed and whether any identified risks have been mitigated;

(g) how the legal enforceability of the recovery plan against service providers of outsourcing arrangements as referred to in point (f) has been assessed and whether any inability of the provider of such outsourced arrangements to comply with its obligations under the outsourcing arrangements has been satisfactorily assessed and how those risks have been mitigated in the recovery plan.

Article 8

Assessment of the overall impact on certain entities in relation to a CCP’s communication and disclosure plan

Competent authorities and supervisory colleges shall assess the adequacy of a CCP’s recovery plan in respect of that CCP’s communication and disclosure plan by considering the overall impact that the implementation of the recovery plan would have on the entities or markets referred to in Article 10(3), point (b), of Regulation (EU) 2021/23, and in particular by considering all of the following factors:

(b) whether the CCP’s communication and disclosure plan contains clear procedures for how and when to share information with different entities, giving clear descriptions of how such procedures have taken into consideration legal requirements and other binding requirements.

Article 9

Assessment of the overall impact of a CCP’s recovery plan on clearing members, their clients, and indirect clients