The European Parliament鈥檚 Economic and Monetary Affairs Committee (ECON) vice chair and author of a proposal for a unified recovery and resolution framework for failing central counterparties (CCPs), Kay Swinburne, has celebrated the successful passing of her report to the next stage of review.
In a committee meeting this week, ECON committed to 鈥渇ight for client safeguards, a clear and binding recovery plan and effective supervisory oversight in the upcoming negotiations with co-legislators in the council on the rules surrounding the recovery and resolution of CCPs鈥�.
The set of proposals on how CCPs and EU governing bodies should prepare for the unlikely event of a failure, which was first offered by Swinburne and fellow ECON member Jacob von Weizsacker in March 2017, was voted through in yesterday鈥檚 meeting.
It precedes the position of the European council, which is yet to be finalised.
Speaking after the vote, Swinburne, who is also a member of the European Parliament for the UK's Conservative Party, said: 鈥淜ey to the parliament's position is the correct and effective aligning of incentives, all the way from the default waterfall, through to the recovery stage and on to resolution.鈥�
鈥淚t is vital therefore, that every participant in the clearing process is fully committed to the resilience of these critical financial market infrastructures.鈥�
鈥淭his principle governs the use of every tool and action taken, so that the vested interests present in the CCP remain united.鈥�
Swinburne continued: 鈥淚n keeping with this, we have ensured that the resolution authority can take quick, decisive action by agreeing on a 鈥榥o credit worse off principle鈥� that is based only on quantifiable factors.鈥�
鈥淎 furthering prominent theme throughout the parliament's report of protective safeguards for the end user 鈥� those participants mandated to use the CCP but lacking influence over its operating rules, management and procedures.鈥�
鈥淎bove all, I am pleased that this report maintains alightment with the global work, whilst adding further detail on how European CCPs will operate and protect those end clients 鈥� and ultimately the taxpayer.鈥�
The report stipulates that CCPs must develop appropriate indicators to inform clearing participants and authorities on when the plans should be activated.
Both default and non-default losses must be taken into account by CCPs when designing recovery plans, including those relating to fraud or cyber-attacks.
The CCP recovery framework is aimed at achieving CCP recovery and business continuity by means of a combination of tools to re-allocate positions and allocate losses.
The ECON report highlighted that CCP recovery plans should not assume access to extraordinary public financial support or expose taxpayers to the risk of loss.
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