The European Securities and Market Authority (ESMA) has published its advice to the European Commission (EC) on the equivalence of the regulatory regimes for over-the-counter (OTC) derivatives clearing, central counterparties (CCPs), and trade repositories (TR) of non-European Union (EU) countries with the European Markets Infrastructure Regulation (EMIR).
ESMA has assessed the equivalence of the regulatory regimes of Australia, Hong Kong, Japan, Singapore, Switzerland and the US. The third-country rules were compared with EMIR requirements for central clearing, reporting, CCPs, TRs and non-financial counterparties as well as risk mitigation techniques for uncleared trades.
ESMA proposes conditional equivalence
ESMA said that it considers third-country regimes equivalent where the legal provisions and the level of supervision and enforcement is similar to that of EMIR. ESMA finds the regulatory regimes of Australia and Switzerland for CCPs equivalent to EU rules. Conditional equivalence is proposed to the following regimes:
- Hong Kong, Japan, Singapore, and the US for CCPs.
- The US and Japan for central clearing, requirements for non-financial counterparties and risk mitigation techniques for uncleared trades.
- The US for TRs.
The EC is expected to use ESMA’s technical advice to prepare possible equivalence decisions. Where it adopts such a decision, certain provisions of EMIR may be disapplied in favour of equivalent third-country rules and, depending on the specific area determined to be equivalent, ESMA may:
- Recognise within the EU a CCP which is authorised outside the EU.
- Recognise within the EU a TR which is authorised outside the EU.
ESMA’s advice is based on a factual assessment of the rules of each jurisdiction but has also taken into account possible consequences for the stability and protection of EU entities and investors that an equivalence decision would have. ESMA’s advice has also considered upcoming regulations in several jurisdictions that may impact the equivalence assessment.
Next steps
For Australia, Canada, Hong Kong, India, Singapore, South Korea and Switzerland, ESMA will be delivering its advice on areas not yet covered by 1 October 2013. CCPs from third-countries that want to continue to be offering clearing services directly to EU clearing members will have to apply for ESMA recognition by 15 September 2013.