Logo Eurofi

Home > Speakers' views

CCP resilience, recovery and resolution - Resilience of the EU financial sector in the global context

Recovery and Resolution of CCPs – A globally coordinated response to avoid a global failure

By Swinburne Kay - MEP, Rapporteur – Recovery and Resolution of CCPs, ECR Coordinator Economic and Monetary Affairs Committee, European Parliament


Recovery and Resolution planning and implementation for the largest global CCPs will have to be coordinated at an international level. We can either do it now, calmly, in advance, or in the throes of a crisis without the proper tools or legal framework.

Recovery tools are now broadly agreed upon while differences beyond the point of non-viability into Resolution are still under heated discussion. The tools may be the same or similar but decisions need to be made over who operates them, at what point, and under which conditions.

Many of the tools for recovery will pass into resolution – refills of the default fund, use of skin in the game, margin haircutting, are all tools that could be used by a resolution authority instead of the CCP itself.

Within the EU, agreement over powers of supervisory colleges and crisis management groups will be crucial. I believe their real usefulness will be whether they incorporate the supervisors of multiple types of market participants and truly work for wider financial stability.

I suspect discussion between Member States will focus on other priorities. However, the agreement reached between the Bank of England and the ECB over access to central bank liquidity as well as the deal agreed by David Cameron early this year on protections for the UK in the area of financial services should ensure that this discussion starts on a positive basis.

Once the framework has been agreed between global regulators at the FSB and CPSS IOSCO many tools may not require new legal frameworks to implement. In order to ensure legal certainty and to tailor these tools to the specific circumstances of different organizational structures and different asset classes within CCPs, the best way to implement them may be through CCP’s rule books.

While a clear Resolution authority will need to be designated, as the US Dodd Frank Acts does, many other provisions will not require new legislative frameworks in some jurisdictions.

We already have strong international consensus stemming from the G20 Pittsburgh agreement on central clearing of derivatives, reinforced by the IOSCO Principles for Financial Market Infrastructure and now, finally coming together into detailed agreements such as the one between the EU and US on CCP equivalence.

Any EU framework will not work in isolation. The largest clearing members of the largest CCPs are global and common to one another. Should a CCP fail there will need to be global cooperation between supervisors of clearing members and CCPs, as well as their clients. This will also extend to supervisors of other CCPs as the interconnectedness of the global derivatives markets mean decisions taken in one jurisdiction will impact others.