European
financial regulators have completed rules forcing major banks and investment
firms to maintain active clearing accounts within the European Union, part of a
broader effort to reduce the bloc’s reliance on UK-based clearing houses
following Brexit.
The
European Securities and Markets Authority (ESMA) published
its final technical standards Thursday, detailing how financial institutions
must comply with the Active Account Requirement that takes effect later this
year. The rules apply to firms clearing more than €3 billion worth of
euro-denominated interest rate derivatives and Polish zloty contracts.
Banks
subject to the new requirements will need to demonstrate their EU clearing
accounts can handle a threefold increase in trading volumes within short
notice. They must also clear representative trades across different contract
types and maturities to prove the accounts remain functional rather than
dormant.
The
regulations target institutions heavily exposed to LCH Ltd and ICE Clear
Europe, two London-based clearing houses that handle the bulk of European
derivatives trading. EU officials worry this concentration creates financial
stability risks if access to these services gets disrupted.
“The
active account requirement appropriately contributes to the overarching
objective of reducing the excessive exposures to substantially systemic
clearing services provided by third-country CCPs,” ESMA stated in its
216-page final report.
Related: EU Regulators Impose 970 Sanctions Worth €71 Million in 2024 Enforcement Push
Banks Get Six-Month Window
to Comply with EU Clearing Requirements
Financial
firms will have six months to establish compliant accounts once they breach the
€3 billion threshold. Those already clearing at least 85% of their relevant
derivatives within the EU get exempted from the operational requirements,
though they still must maintain the accounts.
The rules
include a scaled approach based on trading volumes. Institutions with less than
€6 billion in outstanding positions face lighter requirements, while those
above €100 billion must meet stricter compliance timelines and reporting
obligations.
Banks will
need to conduct annual stress tests proving their accounts can absorb large
transaction flows. They must also designate staff responsible for maintaining
clearing operations and report their compliance status to national regulators
every six months.
The
requirements cover three specific categories: over-the-counter interest rate
derivatives in euros, and short-term interest rate derivatives. ESMA based
these selections on its assessment of which clearing services pose substantial
systemic risks to EU financial stability.
You may also like: 12 ESMA Market Abuse Rules That Your Business Must Follow – August 27 Deadline
Industry Concerns
Industry
groups had raised concerns about implementation costs and the burden of
maintaining multiple clearing relationships. Some argued the requirements could
force unnecessary trading purely for compliance purposes.
ESMA
addressed these concerns by simplifying reporting requirements and allowing
flexibility in how firms demonstrate account representativeness. The regulator
removed some granular data collection initially proposed after industry
feedback.
The
European Commission now has three months to adopt the technical standards,
which would then require approval from the European Parliament and Council. The
rules represent a key component of the EU’s post-Brexit strategy to strengthen
its financial market infrastructure and reduce dependency on UK-based services.
European
financial regulators have completed rules forcing major banks and investment
firms to maintain active clearing accounts within the European Union, part of a
broader effort to reduce the bloc’s reliance on UK-based clearing houses
following Brexit.
The
European Securities and Markets Authority (ESMA) published
its final technical standards Thursday, detailing how financial institutions
must comply with the Active Account Requirement that takes effect later this
year. The rules apply to firms clearing more than €3 billion worth of
euro-denominated interest rate derivatives and Polish zloty contracts.
Banks
subject to the new requirements will need to demonstrate their EU clearing
accounts can handle a threefold increase in trading volumes within short
notice. They must also clear representative trades across different contract
types and maturities to prove the accounts remain functional rather than
dormant.
The
regulations target institutions heavily exposed to LCH Ltd and ICE Clear
Europe, two London-based clearing houses that handle the bulk of European
derivatives trading. EU officials worry this concentration creates financial
stability risks if access to these services gets disrupted.
“The
active account requirement appropriately contributes to the overarching
objective of reducing the excessive exposures to substantially systemic
clearing services provided by third-country CCPs,” ESMA stated in its
216-page final report.
Related: EU Regulators Impose 970 Sanctions Worth €71 Million in 2024 Enforcement Push
Banks Get Six-Month Window
to Comply with EU Clearing Requirements
Financial
firms will have six months to establish compliant accounts once they breach the
€3 billion threshold. Those already clearing at least 85% of their relevant
derivatives within the EU get exempted from the operational requirements,
though they still must maintain the accounts.
The rules
include a scaled approach based on trading volumes. Institutions with less than
€6 billion in outstanding positions face lighter requirements, while those
above €100 billion must meet stricter compliance timelines and reporting
obligations.
Banks will
need to conduct annual stress tests proving their accounts can absorb large
transaction flows. They must also designate staff responsible for maintaining
clearing operations and report their compliance status to national regulators
every six months.
The
requirements cover three specific categories: over-the-counter interest rate
derivatives in euros, and short-term interest rate derivatives. ESMA based
these selections on its assessment of which clearing services pose substantial
systemic risks to EU financial stability.
You may also like: 12 ESMA Market Abuse Rules That Your Business Must Follow – August 27 Deadline
Industry Concerns
Industry
groups had raised concerns about implementation costs and the burden of
maintaining multiple clearing relationships. Some argued the requirements could
force unnecessary trading purely for compliance purposes.
ESMA
addressed these concerns by simplifying reporting requirements and allowing
flexibility in how firms demonstrate account representativeness. The regulator
removed some granular data collection initially proposed after industry
feedback.
The
European Commission now has three months to adopt the technical standards,
which would then require approval from the European Parliament and Council. The
rules represent a key component of the EU’s post-Brexit strategy to strengthen
its financial market infrastructure and reduce dependency on UK-based services.
