As part of a move to expand central clearing activities in the EU and reduce the overdependence on non-EU Central Counterparties (CCPs), the European Commission in February launched a targeted public consultation, which closes on 22 March 2022. The aim of this consultation is to put the EU in a better position to propose meaningful legal changes to EU rules in this area to enhance liquidity in EU CCPs and expand the range of clearing solutions on offer from EU infrastructures. At the same time, the Commission also extended the time-limited equivalence for UK CCPs.

Developing the CMU by making EU CCPs more attractive

In the second half of 2022, the Commission plans to come forward with legislative or non-legislative measures to build the EU’s capacity for clearing and make European CCPs more attractive to market participants. First, measures to make Europe an attractive, competitive and cost-efficient clearing hub should help drive an expansion of central clearing activities in the EU. Second, if the EU is to increase its capacity for central clearing, any related risks will need to be properly managed and the EU's framework for CCPs strengthened, including through a stronger role for EU-level supervision.      

Extending time-limited equivalence for UK CCPs

UK CCPs now operate outside of the Single Market and the EU’s regulatory framework. In September 2020, the Commission adopted a time-limited equivalence decision for UK CCPs until 30 June 2022. It did this to avoid the risks to financial stability that a sudden disruption in EU participants’ access to UK CCPs would have brought. Market participants were urged to take action and reduce their exposures to UK CCPs. However, the move so far has been marginal and mostly concerned low-risk products rather than the more complex and risky positions still cleared in the UK. A working group was set up in 2021 by the Commission (together with the European Central Bank, the European Supervisory Authorities and the European Systemic Risk Board) to explore the opportunities and challenges involved in reducing the EU’s exposures to the UK. It found that the original timeframe of June 2022 was too short to achieve this and that an extension of the equivalence decision for UK CCPs would be necessary. Consequently, the Commission has extended equivalence until 30 June 2025, in order to avoid any short-term financial stability risks.

Safeguarding financial stability

The decision to extend equivalence temporarily avoids a cliff-edge for EU participants. The path the Commission is proposing strikes a balance between safeguarding financial stability in the short term – by extending the equivalence for UK CCPs – and safeguarding financial stability in the medium term – by reducing a risky over-reliance on a non-EU country. 

Read more about derivatives, CCPs and equivalence and take part in the consultation