London
07 June 2017
Reporter: Stephanie Palmer

EC’s forced relocation of euro clearing would weaken financial stability, says FIA


The Futures Industry Association (FIA) has expressed “grave concerns” about the European Commission’s plans to force relocation of euro clearing.

In a letter addressed to Valdis Dombrovskis, vice president of the European Commission, FIA president Walt Lukken noted the importance of protecting financial stability, but suggested that forced relocation of euro-denominated cleared derivatives would be “the most disruptive and expensive approach to overseeing third-country central counterparties (CCPs), without improving the oversight of this activity.”

The letter came as a response to a European Commission communication issued on 4 May, which suggested that further safeguarding of the financial system is required, and that this could include increased supervision of euro clearing and forced relocation.

In the communication, the European Commission said: “In view of the challenges in the area of derivatives clearing, further changes will be necessary to improve the current framework that ensures financial stability and supports the further development and deepening of the Capital Markets Union.”

It went on: “Specific arrangements based on objective criteria will become necessary to ensure that, where CCPs play a key systemic role for EU financial markets and directly impact the responsibilities, including financial stability and monetary policy, of EU and member state institutions and authorities, they are subject to safeguards provided by the EU legal framework.”

“This includes, where necessary, enhanced supervision at EU level and/or location requirements.”

The FIA, however, said it has “grave concerns” about this approach, arguing that forced relocation would “fragment these markets, raise costs for end users, and weaken the stability of the financial system.”

The letter went on: “The location of clearing activity should be driven by legitimate market forces operating within a regulatory framework suited for a global market.”

It suggested that forced relocation would lead to fragmentation between euro-denominated derivatives cleared in the EU non-euro denominated derivatives, which will likely continue to be traded outside of the EU. This would “have an adverse effect on systemic risk”, the letter said.

In a statement, Lukken added that forced relocation would be detrimental to end users “that rely on these markets for hedging and managing their exposure to risk”, and suggested that the required security in clearing could be achieved through improved oversight and recognition alone.

He said: “FIA believes that the commission’s suggestion of recognition and enhanced supervision are more effective ways to protect financial stability than forced relocation of the clearing of euro-denominated products.”

More regulation news
The latest news from Asset Servicing Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Aquis launches SI hub for MiFID II compliance
17 January 2018 | London | Reporter: Jenna Lomax
Aquis Technologies has launched a connectivity hub to meet with the new MiFID II stipulations
AQ Metrics authorised as ARM by Central Bank of Ireland
08 January 2018 | Dublin | Reporter: Jenna Lomax
The Central Bank of Ireland has authorised AQ Metrics as an approved reporting mechanism
Industry participants react to MiFID II
05 January 2018 | London | Reporter: Jenna Lomax
After MiFID II went live two days ago (3 January), industry participants share their views about what it actually means for the industry going forward
MiFID II goes live
03 January 2018 | London | Reporter: Becky Butcher
The second Markets in Financial Instruments Directive (MiFID II) has now become effective as a part of EU legislation
ESMA delays LEI requirements for MiFID II
22 December 2017 | Paris | Reporter: Becky Butcher
The European Markets and Securities Authority (ESMA) has issued a delay to the enforcement of the LEI requirements for the MiFID II
EFAMA welcomes EC proposal
21 December 2017 | Brussels | Reporter: Becky Butcher
EFAMA has welcomed the European Commission’s proposal for a directive and regulation to establish a self-standing prudential regime for investment firms
Euronext’s ARM and APA approved
14 December 2017 | Paris | Reporter: Stephanie Palmer
Euronext has been approved by the French regulator to provide approved publication arrangement and approved reporting mechanism services to investment firms in Europe, under MiFID II
More regulation news