A substantial volume of financial instruments denominated in the currencies of Members States are currently cleared by central counterparties (“CCPs”), established in, and regulated by, Third Country CCPs on the basis of their recognition by the European Securities and Markets Authority (“ESMA”) under the European Market Infrastructure Regulation ("EMIR"). This number is expected to increase upon the U.K.’s withdrawal from the E.U. (“Brexit”). On 14 June 2017, owing to the growing regulatory attention on CCPs, the European Commission adopted a proposal to alter the processes for authorisation and recognition of CCPs as well as the framework for monitoring and supervising CCPs under EMIR (the “Proposal”).
The FMLC has published a paper identifying legal uncertainties arising from the proposed changes to the TC CCPs arrangements. The paper outlines uncertainties which include: i) the lack of clarity in the recognition process of Third Country CCPs; ii) the mechanics of relocation of important Third Country CCPs; and iii) the potential conflicts of law that might arise from the expanded investigatory powers bestowed to regulatory authorities. To address the uncertainties, the FMLC has made recommendations for solutions and mitigants that promote further clarity and transparency in the Proposal to amend EMIR.
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