As
the EU finalizes the regulation of OTC derivatives this year, it is important
that there be cross-border harmonization and convergence with the derivatives
regulatory regimes of other jurisdictions, said Verena Ross, Executive Director
of the European
Securities and Markets Authority. In recent remarks, she noted that there is no alternative to
close international cooperation, both in the setting of standards and in the
execution of day-to day-supervision, if regulators and policymakers want to
achieve an efficient system for the global financial markets. Since no single
regulator can seek to regulate global financial markets from one location, she
reasoned, regulators will need to rely on equivalence, mutual recognition and
cooperation in order to make progress.
In coordination with the
European Commission, but also in close cooperation with national regulators,
ESMA plays a central role in ensuring that Europe
speaks with one voice vis-à-vis regulators outside the European Union. The
Executive Director pointed out that a main reason for cross-border regulatory
convergence is to avoid regulatory competition whereby regions end up with
fundamentally different, and potentially lower standards and ultimately a more
risky environment for everyone.
The initiatives related to
OTC derivatives are a good example of this need for convergence and cooperation
at a global level. In Europe , the result from
the G20 commitments has been the European Market Infrastructure Regulation (EMIR), and to a degree the
provisions on derivatives transparency in MiFID 2. The same issues are
occupying EU counterparts in the US
and Asia .
EMIR introduces a reporting
obligation for OTC derivatives, a clearing obligation for eligible OTC
derivatives, measures to reduce counterparty credit risk and operational risk
for non-cleared OTC derivatives, common rules for central counterparties and
for trade repositories, and rules on the establishment of interoperability
between central counterparties.
Now that EMIR has now been
agreed upon by the European Parliament and the Council, noted Ms. Ross, ESMA is
due to deliver draft regulatory and implementing technical standards under
EMIR. Indeed, the EMIR standards will dominate ESMA’s agenda for the next
months in view of the number and complexity of the technical standards to be
delivered. There will be around 40 standards, said the ESMA official, and most
of them will require careful consideration and often difficult judgments to be
taken.
Regarding the derivatives
regulations and standards, ESMA intends to publish a consultation paper in June
and hold a public hearing in July to take the work forward. Since EMIR and
ESMA’s technical standards contain major changes for financial markets
participants, the official hopes that there will be active public engagement in
the upcoming consultation, despite the fact that due to a deadline of the end
of September ESMA will need to conduct the consultation during the summer.
ESMA is due to deliver the
standards to the European Commission by the end of September. It is expected
that the Commission will endorse them by the end of the year, to ensure that
the EU meets the G20 commitments on moving OTC derivatives markets to be
centrally cleared. At the Pittsburgh Summit in 2009, the G20 leaders agreed
that by the end of 2012 all standardized OTC derivative contracts should be
traded on exchanges or electronic trading platforms, where appropriate, and
cleared through central counterparties, that OTC derivative contracts be
reported to trade repositories, and that non-centrally cleared contracts be
subject to higher capital requirements.