CCPs: EU Equivalence and Regulatory ‘Bazookas’

This paper discusses various aspects of equivalence and (re)location issues in relation to central counterparties (‘CCPs’). We will inevitably focus on the consequences of Brexit for the position of the London-based CCPs and the potential impact thereof on the derivatives clearing landscape in the European Union (‘EU’). We will first describe the regime applicable to CCPs under the 2012 EMIR regime. This is followed by an introduction to EMIR 2.2 and the tiering of third-country CCPs. Subsequently, we will review the ESMA assessment of substantially systemically important clearing services and summarise the EMIR 3.0 proposal and its implications. Subsequently, the potential impact of the imposition of a location policy will be addressed. Finally, we will comment on how the European regime applicable to CCPs aligns with what may be referred to as the ‘international legal order’ providing the regulatory parameters within which cross-border clearing services may be conducted. We contend that imposing additional requirements for Tier 2 CCPs and the implementation of a (partial) location policy could prove to be regulatory ‘bazookas’. Acting in breach of the international order of mutual recognition and deference could well backfire to the detriment of the European clearing industry.