EMIR - Recognition given to LCH Ltd and ICE Clear Ltd
ESMA does not currently envisage a withdrawal, even partial, of the recognition granted to LCH Ltd and ICE Clear Ltd but prefers to propose different measures to limit the risks identified, such as encouraging the clearing parties to reduce their exposure to these CCPs* , implementing alternative solutions, reviewing the role and tools of ESMA or strengthening cooperation between the Union and the UK on the file “recovery – resolution of CCPs”.
On September 28, 2020, ESMA granted temporary recognition (until June 30, 2022) to three British CCPs, two of which were considered “systemic”. The European regulator also indicated that it would use these 18 months to conduct an assessment of the risk that the two CCPs classified as Tier 2, namely LCH Ltd and ICE Clear Ltd, could cause to the financial stability of the Union or of one of the Member States (see Flash News).
It should be recalled that under EMIR 2.2 (2019/2099), the systemic importance of a third country CCP may be considered such that it should no longer be recognised as providing certain clearing services or activities in the Union. This decision is based on a recommendation from ESMA.
On 17 December 2021, the European regulator issued its conclusions on the two CCPs.
Based on its valuation methodology2, ESMA identified different scenarios that could impact financial stability in Europe. These include: the clearing offer on IRS3 in Euros and Polish Zlotys (LCH Ltd) and the clearing offers of CDS4 and STIR5 when they relate to Euro (ICE Clear Ltd). However, ESMA considers that the cost and consequences of a derecognition would be disproportionate in comparison with the benefits for the Union. For this reason, ESMA prefers measures aimed at limiting risks rather than questioning the recognition given to these CCPs.
In parallel, the European Commission should, as announced in November 2021 (see Flash News), propose an extension of the temporary equivalence.
*CCP : central counterparty
3IRS : Interest Rate Swap
4 CDS: Credit Default Swap
5 Short-Term Interest Rate Derivatives service