Financial stability: Commission welcomes political agreement on new EU rules on the recovery and resolution of Central Counterparties (CCPs)

The European Commission welcomes yesterday’s political agreement between the European Parliament and Council on new EU rules related to the recovery and resolution of Central Counterparties (CCPs). CCPs play a systemic role in the financial system as they act as hubs for financial transactions, such as derivatives contracts. They are already well-regulated and subject to stringent supervision, thanks to a raft of measures adopted in the wake of the financial crisis. Thenew rules will further strengthen financial stability in the EU, by setting out what will happen if a CCP were to run into financial difficulty. In particular, resolution authorities must come up with resolution plans on how to handle any form of financial distress, which would exceed a CCP’s existing resources. In the highly unlikely event of a CCP failure, national authorities can use resolution tools that include the write-down of shareholders’ capital and a sizeable cash-call to clearing members. The aim of this is to minimise the extent to which the cost of a CCP’s failure is borne by taxpayers. Executive Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, said: “I welcome the political agreement on CCP Recovery and Resolution and I would like to congratulate the Croatian Presidency for all their hard work on this file. It is another step towards making the EU’s financial system more resilient. It also adds an additional layer of safety for our financial system. This agreement places the EU at the cutting edge of international developments in this area.” Further technical work will follow this political agreement so that the European Parliament and the Council can formally adopt the final text soon. More details are available here.