The chair of the European Securities and Markets Authority (ESMA) has called for an overhaul in how the foreign clearing houses are granted equivalency.
Under the European Markets Infrastructure Regulation (EMIR), a third country must be deemed as having compatible rules as the EU in order to allow its clearing houses to process cross-border derivatives trades.
The EU has currently approved 22 third-country central counterparties (CCPs) from countries including the US, Canada, Mexico, South Africa, Hong Kong, Japan, Australia, and Singapore among others.
Addressing the European parliament in Brussels, Steven Maijoor outlined the flaws with the EU’s current framework.
“First, there is no generic third country framework, it is a patchwork of arrangements varying across the various pieces of legislation.
“No arrangement is identical and they are mixtures of equivalence, endorsement, recognition, third country passporting or no arrangement at all.
“Second, the third country framework is time and resource intensive as it requires detailed assessments of the regulatory and supervisory regimes of third countries and lengthy negotiations if a third country is initially not equivalent.
“It is clear to me that the EU third country framework needs to be overhauled,” said Maijoor.
Maijoor also expressed concerns that the current framework may lead to increased pressure on the regulator.
“When the regulatory and supervisory outcomes are determined to be equivalent, subject to certain conditions, a third country CCP can be recognised and provide its services to EU clients. However, under this regime there is a heavy reliance on the home regulator,” said Maijoor.