Regulation (EU) 2024/2987 of the European Parliament and of the Council of 27 November 2024 amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets (Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Central Bank (1),

Having regard to the opinion of the European Economic and Social Committee (2),

Acting in accordance with the ordinary legislative procedure (3),

Whereas:

(1) Regulation (EU) No 648/2012 of the European Parliament and of the Council (4) contributes to the reduction of systemic risk by increasing the transparency of the over-the-counter (OTC) derivatives market and by reducing the counterparty credit and operational risks associated with OTC derivatives.

(2) Post-trade infrastructures are a fundamental aspect of the capital markets union and are responsible for a range of post-trade processes, including clearing. An efficient and competitive clearing system in the Union is essential for the functioning of Union capital markets and is a cornerstone of the financial stability of the Union. It is therefore necessary to lay down further rules to improve the efficiency of clearing services in the Union in general, and of central counterparties (CCPs) in particular, by streamlining procedures, especially for the provision of additional services or activities and for changing CCPs’ risk models, by increasing liquidity, by encouraging clearing at Union CCPs, by modernising the framework under which CCPs operate, and by providing the necessary flexibility to CCPs and other financial actors to compete within the internal market.

(3) Union market participants need to have more options as regards access to safe and efficient clearing services. To attract business, CCPs must be safe and resilient. Regulation (EU) No 648/2012 lays down measures to increase the transparency of derivatives markets and mitigate risks through clearing and the exchange of margin. In that respect, CCPs play an important role in mitigating financial risks. Rules should therefore be laid down to further enhance the stability of Union CCPs, notably by amending certain aspects of the regulatory framework. In addition, and in recognition of Union CCPs’ role in preserving the financial stability of the Union, it is necessary to strengthen further the supervision of Union CCPs, with particular attention to their role within the broader financial system and the fact that they provide cross-border services.

(4) Central clearing is a global business and Union market participants are active internationally. However, since the adoption of amendments to Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs, concerns have been expressed repeatedly, including by the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (5), about the ongoing risks to the financial stability of the Union arising from the excessive concentration of clearing in some third-country CCPs, in particular due to the potential risks that can arise in stressed market conditions. In the short term, in order to mitigate the risk of cliff edge effects related to the withdrawal of the United Kingdom (UK) from the Union and the subsequent abrupt disruption of Union market participants’ access to UK CCPs, the Commission adopted a series of equivalence decisions to maintain access to UK CCPs. However, the Commission called on Union market participants to reduce, in the medium term, their excessive exposures to systemic third-country CCPs. The Commission reiterated that call in its communication of 19 January 2021 entitled ‘The European economic and financial system: fostering openness, strength and resilience’. The risks and effects of excessive exposures to systemic third-country CCPs were considered in the report published by ESMA in December 2021 following an assessment conducted pursuant to Article 25(2c) of Regulation (EU) No 648/2012. That report concluded that some services provided by systemically important UK CCPs were of such substantial systemic importance that the current arrangements under Regulation (EU) No 648/2012 were insufficient to manage the risks to the financial stability of the Union. To mitigate the potential financial stability risks to the Union due to the continued excessive reliance on systemic third-country CCPs, but also to enhance the proportionality of measures for third-country CCPs that present fewer risks to the financial stability of the Union, it is necessary to further tailor the framework introduced by Regulation (EU) 2019/2099 of the European Parliament and of the Council (6) to the risks presented by different third-country CCPs.

(5) Regulation (EU) No 648/2012 exempts intragroup transactions from the clearing obligation and the margin requirements. To provide more legal certainty and predictability concerning the framework for intragroup transactions, the regime for equivalence decisions in Article 13 of Regulation (EU) No 648/2012 should be replaced by a simpler framework. Article 3 of Regulation (EU) No 648/2012 should therefore be amended to replace the need for an equivalence decision with a list of third countries for which an exemption should not be granted. In addition, Article 13 of Regulation (EU) No 648/2012 should be amended to provide for equivalence decisions only in relation to Article 11 of that Regulation. Since Article 382 of Regulation (EU) No 575/2013 of the European Parliament and of the Council (7) refers to intragroup transactions within the meaning of Regulation (EU) No 648/2012, Article 382 of Regulation (EU) No 575/2013 should also be amended accordingly.

(6) Given the fact that entities that are established in third countries that have strategic deficiencies in their national anti-money laundering and counter terrorist financing regimes (‘high-risk third countries’), as referred to in Regulation (EU) 2024/1624 of the European Parliament and of the Council (8), or in third countries listed in Annex I to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes, are subject to a less stringent regulatory environment, their operations might increase the risk, including due to increased counterparty credit risk and legal risk, to the financial stability of the Union. Consequently, such entities should not be eligible to be considered in the framework of intragroup transactions.

(7) Strategic deficiencies in national regimes on anti-money laundering and counter terrorist financing or a lack of cooperation for tax purposes are not necessarily the only factors that can influence the risks, including counterparty credit risk and legal risk, associated with derivative contracts. Other factors, such as the supervisory framework, also play a role. The Commission should therefore be empowered to adopt delegated acts to identify the third countries whose entities are not permitted to benefit from intragroup exemptions despite those third countries not being identified as high-risk third countries or listed in Annex I to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes. In light of the fact that intragroup transactions benefit from reduced regulatory requirements, regulators and supervisors should carefully monitor and assess the risks associated with transactions involving entities from third countries.

(8) To ensure a level playing field between Union and third-country credit institutions offering clearing services to pension scheme arrangements, an exemption from the clearing obligation under Regulation (EU) No 648/2012 should be introduced where a Union financial counterparty that is subject to the clearing obligation or a non-financial counterparty that is subject to the clearing obligation enters into a transaction with a pension scheme arrangement established in a third country which is exempted from the clearing obligation under that third country’s national law.

(9) Regulation (EU) No 648/2012 promotes the use of central clearing as the main risk-mitigation technique for OTC derivatives. The risks associated with an OTC derivative contract are therefore best mitigated when that OTC derivative contract is cleared by a CCP authorised or recognised under Regulation (EU) No 648/2012 (the ‘authorised or recognised CCP’). It follows that in the calculation of the position that is compared to the clearing thresholds specified pursuant to Article 10(4), point (b), of Regulation (EU) No 648/2012, only those OTC derivative contracts that are not cleared by an authorised or recognised CCP should be included in such calculation. In order to ensure that the current prudent coverage of the clearing obligation is not affected by the new methodology, it is appropriate to empower ESMA to also set an aggregate clearing threshold, if needed.

(10) Post-trade risk reduction (PTRR) services reduce risks, such as credit risk and operational risk, of derivatives portfolios and are therefore a valuable tool for improving the resilience of the OTC derivatives market. They include services such as portfolio compression, portfolio optimisation and rebalancing services. PTRR service providers often use complex financial instruments to ensure that the transactions resulting from PTRR exercises are not subject to the clearing obligation. Doing so limits the usability and accessibility of PTRR services to advanced financial markets participants and reduces the benefits resulting from the use of PTRR services, as the use of complex products that are not subject to the clearing obligation increases risk in the financial system. Given the benefits of PTRR services, their use should be facilitated and made available to a wider group of market participants. Therefore, transactions resulting from PTRR services should be exempted from the clearing obligation. At the same time, to ensure the safe and efficient use of PTRR services, the exemption should be subject to appropriate conditions which are to be further specified and complemented by ESMA.

(11) It is necessary to address the financial stability risks associated with excessive exposures of Union clearing members and clients to systemically important third-country CCPs (Tier 2 CCPs) that provide clearing services that have been identified by ESMA as clearing services of substantial systemic importance pursuant to Regulation (EU) No 648/2012. In December 2021, ESMA concluded that the provision of certain clearing services provided by two Tier 2 CCPs, namely for OTC interest rate derivatives denominated in euro, OTC interest rate derivatives denominated in Polish zloty, credit default swaps denominated in euro and short-term interest rate derivatives denominated in euro, are of substantial systemic importance for the Union or for one or more of its Member States. As noted by ESMA in its December 2021 assessment report, were those Tier 2 CCPs to face financial distress, changes to those CCPs’ eligible collateral, margins or haircuts may negatively impact the sovereign bond markets of one or more Member States, and more broadly, the financial stability of the Union. Furthermore, disruptions in markets relevant for monetary policy implementation may hamper the transmission mechanism critical to central banks of issue. It is therefore appropriate to require financial counterparties and non-financial counterparties that are subject to the clearing obligation to hold, directly or indirectly, accounts and clear a representative number of transactions at Union CCPs. That requirement should contribute to a reduction in the provision of clearing services of substantial systemic importance by those Tier 2 CCPs. In light of recent market developments, in particular concerning credit default swaps denominated in euro, it is appropriate that the requirement only applies to OTC interest rate derivatives denominated in euro and in Polish zloty and short-term interest rate derivatives denominated in euro, in addition to any other clearing service deemed to be of substantial systemic importance in future assessments pursuant to Regulation (EU) No 648/2012.

(12) The active account requirement should apply to financial and non-financial counterparties that are subject to the clearing obligation and exceed the clearing thresholds in any of the categories of derivative contracts identified by ESMA as being of substantial systemic importance. When verifying whether they are subject to the active account requirement, counterparties that are part of groups headquartered in the Union should take into account the derivative contracts belonging to clearing services of substantial systemic importance that are cleared by any entity within the group, including entities established in third countries, since those contracts might contribute to the excessive degree of exposure of the group as a whole. Derivative contracts of third-country subsidiaries of Union groups should also be included to prevent those groups from moving their clearing activities outside the Union in order to avoid the active account requirement. A counterparty that is subject to the active account requirement and that belongs to a group should be required to meet the representativeness obligation based on its own transactions. Third-country entities that are not subject to the clearing obligation under Union law are not subject to the obligation to maintain an active account.

(13) The active account requirement is a new requirement. The novelty of the requirement and the need for market participants to gradually adapt to it should be properly taken into account. That is why it is appropriate that the active account requirement can be met by market participants by establishing permanently functional accounts at Union CCPs. The active account requirement should include operational elements. The account should be suitable for quickly clearing a significant number of trades moved out from a Tier 2 CCP and for clearing all new trades in the categories of derivative contracts identified as being of substantial systemic importance. Those operational elements should also contribute to incentivising counterparties to move trades to the Union. In that regard, it is appropriate to take into account the situation of counterparties that are already clearing a significant amount of their transactions in interest rate derivatives denominated in euro and Polish zloty, and in short-term interest rate derivatives denominated in euro, at Union CCPs. Those counterparties should not be subject to the operational requirements associated with the active account requirement.

(14) In order to ensure that the active account requirement contributes to the overarching objective of reducing excessive exposures to clearing services of substantial systemic importance provided by third-country CCPs and that the account is not dormant, a minimum number of derivative contracts should be cleared in the active accounts. Those contracts should be representative of the different subcategories of derivative contracts belonging to clearing services of substantial systemic importance (the ‘representativeness obligation’). The representativeness obligation should reflect the diversity of the portfolios of financial and non-financial counterparties subject to the active account requirement. Contracts with different maturities and different sizes should be cleared through the active accounts, as well as contracts of different economic nature, including all classes of interest rate derivatives that are subject to the clearing obligation under Commission Delegated Regulations (EU) 2015/2205 (9) and (EU) 2016/1178 (10) as regards those denominated in Polish zloty. To define the minimum number of derivative contracts that should be cleared through the active accounts, ESMA should identify up to three derivative classes amongst the derivative contracts belonging to the clearing services of substantial systemic importance. ESMA should further identify up to five most relevant subcategories of trades, per derivative class, based on a combination of size and maturity. Counterparties should then be required to clear at least five trades in the reference period in each relevant subcategory. The number of derivative contracts to be cleared should be at least five trades in the reference period on an annual average basis, meaning that in assessing whether counterparties fulfil the representativeness obligation, competent authorities should consider the total number of trades over a year. In order to ensure a proportionate approach and to avoid imposing an excessive burden on counterparties that have limited activity in the different subcategories of derivative contracts identified by ESMA, a de minimis threshold should apply to the representativeness obligation. In addition, the specific business model of Union pension scheme arrangements needs to be properly taken into account. In several cases, such arrangements have a limited number of interest rate derivatives trades, which are concentrated, long-term and with a high notional amount. That is why it is appropriate for a scaled-down representativeness obligation to be established, which should require one trade to be cleared instead of five in the most relevant subcategories per reference period. Member States should introduce appropriate periodic penalty payments for cases where a counterparty subject to the active account requirement fails to meet its obligations with regard to the operational criteria or the representativeness obligation.

(15) ESMA has an important role in the assessment of the substantial systemic importance of third-country CCPs and their clearing services. By 18 months following the entry into force of this Regulation, or at any point in time in the case of a financial stability risk, ESMA should assess and report to the European Parliament, the Council and the Commission on the effects of this Regulation in reducing exposures to systemically important Tier 2 CCPs. ESMA should propose any measures it deems necessary, as well as quantitative thresholds, and accompany them with an impact assessment and a cost-benefit analysis. ESMA should cooperate with the European System of Central Banks (ESCB), the European Systemic Risk Board (ESRB) and the Joint Monitoring Mechanism established by this Regulation when drafting its assessment and report. Within six months of receiving the ESMA report, the Commission should prepare its own report which may be accompanied, where appropriate, by a legislative proposal.