Financial Compliance: Clearing and Derivative Transactions
Directives 2009/65/EU, 2013/36/EU, and 2019/2034, targeting concentration risk in CCPs and counterparty risk on centrally cleared derivatives. This aligns with the EU Capital Markets Union's goals, fostering risk identification, management and monitoring
EU Parliament Proposes Amendment for Efficient Use of Central Counterparties
The European Parliament has drafted a proposal to amend Directives 2009/65/EU, 2013/36/EU, and 2019/2034 concerning the treatment of concentration risk towards central counterparties (CCPs) and counterparty risk on centrally cleared derivative transactions. The amendment aims to address certain impediments to the use of central clearing in Directive 2009/65/EU and provide clarifications in Directives 2013/36/EU and 2019/2034. This proposal contributes to the objectives of the EU Capital Markets Union by fostering the identification, management, and monitoring of concentration risk arising from exposures towards CCPs and encouraging institutions and investment firms to adapt their business model to ensure consistency with the new requirements for clearing introduced by the revision of Regulation (EU) No 648/2012.
EU Proposal: Concentration Risk & Compliance for Financial Institutions
The European Parliament has proposed amendments to Directives 2009/65/EU, 2013/36/EU, and 2019/2034, focusing on the treatment of concentration risk towards central counterparties (CCPs) and counterparty risk on centrally cleared derivative transactions. The objective of these amendments is to address existing impediments to the use of central clearing in Directive 2009/65/EU and provide clarifications in Directives 2013/36/EU and 2019/2034. The proposed changes aim to enhance the identification, management, and monitoring of concentration risk arising from exposures towards CCPs. Additionally, they encourage financial institutions and investment firms to adapt their business models to ensure compliance with the new clearing requirements introduced by the revised Regulation (EU) No 648/2012, aligning with the objectives of the EU Capital Markets Union.
The proposed amendments have several potential implications for financial institutions and investment firms operating within the European Union. Firstly, they could foster a more efficient utilization of central counterparties (CCPs) in the EU financial system by addressing existing impediments to central clearing and offering clarifications in the relevant Directives. This, in turn, would streamline the management of concentration risk and counterparty risk associated with centrally cleared derivative transactions.
Moreover, these amendments have the potential to contribute to the overall stability of the EU financial system. They encourage institutions and investment firms to adapt their business models to align with the new clearing requirements, which were introduced through the revised Regulation (EU) No 648/2012. Such alignment can help mitigate potential risks of contagion and promote improved risk management practices among financial institutions.
Furthermore, the proposed amendments seek to enhance cooperation and coordination among EU member states in managing concentration risk arising from exposures towards CCPs. By establishing a clear framework for the identification, management, and monitoring of concentration risk, competent authorities will be better equipped to take decisive and effective actions based on their supervisory assessments.
In terms of competitiveness, these amendments could positively impact the EU financial market. By addressing challenges related to concentration risk and counterparty risk on centrally cleared derivative transactions, a level playing field can be established for financial institutions and investment firms operating within the EU, leading to increased efficiency and stability.
To ensure compliance with the proposed amendments, financial institutions and investment firms should undertake various mitigating efforts. These may include conducting comprehensive reviews of concentration risk exposures towards CCPs, implementing appropriate risk mitigation measures, and aligning their business models with the new clearing requirements. Enhancing monitoring and reporting capabilities to meet additional compliance obligations is also crucial.
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