LONDON, May 9 (IFR) - Europe’s key derivatives regulator has
stressed the need to extend its oversight to third-country
financial services providers such as overseas clearinghouses, as
the UK prepares to leave the European Union.
Speaking at ISDA’s Annual General Meeting in Lisbon, Steven
Maijoor, chairman of the European Securities and Markets
Authority, questioned a regulatory framework that relies fully
on third-country regulators to oversee risks that their market
participants might create in the EU, once a regime achieves the
same supervisory outcomes.
“Although recognising there has been some substituted
compliance in other jurisdictions, the reality is that it is a
system that is mainly beneficial to third countries doing
business in the EU,” Maijoor said.
“In the EU, if market participants want to do business
outside the EU, they become subject to the third-country
regulatory system and the EU regulatory system. Obviously, that
was not the intention. The intention was one regulator per
market participant at a global level.”
His comments came as EU lawmakers debate possible location
requirements for euro swaps clearing following Brexit.
London-based LCH is currently home to the majority of euro
interest rate swaps clearing via its SwapClear platform, and
many policymakers are calling for those activities to be moved
to the EU 27 following Brexit.
Maijoor welcomed the European Commission’s communication
last week, which confirmed intentions to table legislative
proposals that would enhance the supervision of third-country
CCPs. Those proposals are expected in June.
In his keynote speech on Tuesday, Maijoor emphasised the
need for regulators to have greater oversight powers over risks
that third-country market participants might be creating in the
“We’re all human and all subject to limited resource, and
it’s natural for a national regulator to have the tendency to
give the risks in its own jurisdiction a higher priority,” he
“We’re trying to get the same system that helps the global
character for derivatives markets, but at the same time ensure
that our objectives of investor protection, stability and
functioning of markets are met.”
ESMA is currently working on a set of principles
regarding outsourcing and delegation issues, which EU 27
regulators would need to take into account when a UK market
participant ceases to locate activities in the EU 27 bloc, in an
attempt to avoid a situation that could see overseas entities
setting up so-called “letter box” entities in the EU while
continuing to operate out of the UK.
ESMA will also publish specialised opinions on the issue
relating to asset managers, investment firms and trading venues.
Maijoor noted that Europe’s system of recognition varies
across different rule sets and must be looked at on a
“The first step is to try and get consistency. This is not a
one-size-fits-all market, but more consistency would be helpful.
He also called for powers to charge third-country entities
to be recognised by ESMA - as is the case for ratings agencies
and trade repositories that the regulator currently supervises.
ESMA may struggle to secure additional resources, however,
as Kay Swinburne, member of the European Parliament and
vice-chair of its Economic and Monetary Affairs Committee, aimed
to justify ESMA’s limited resources, noting that it relies on
national competent authorities for oversight.
“ESMA was set up deliberately to be lean and mean,”
Swinburne told reporters. “The idea was that it was never
supposed to be duplicative. It was supposed to be that
coordinating body and an enforcer of the rulebook rather than
doing the work for itself.”
She also said that the ECB might be the frontrunner for
regulating central counterparty clearing firms if the central
bank goes head-to-head with ESMA for the role following Brexit.
“My suspicion is that after Brexit there is going to be a
significant push for a single supervisor of CCPs in the EU 27,”
“If there is a push, I’m not sure who will win. In terms of
what I want, supervision would lie with the ECB. They have
expertise that goes beyond market observation.
“EMSA has never been a hands-on supervisor; it’s the writer
of rulebooks and enforcer of rules, so it’s a very different
role to hands-on supervision. CCPs are complex institutions, so
you want experts to supervise them.”
(Reporting by Helen Bartholomew; Editing by Philip Wright)