The European Association of Co-operative Banks (EACB) welcomes the opportunity to contribute to the discussion around the draft requirements regarding indirect clearing. It does so because its smaller members in particular have serious difficulty in accessing CCPs both for reasons of (non) availability and cost, but also because some of its larger members have been considering the possibility to provide client clearing services.
It should be borne in mind that smaller Cooperative Banks and Building Societies need derivatives mainly in order to hedge their interest rate risk on e.g. mortgages and other retail bank products at initial fixed rates. Should no solutions become available, small banks, building societies and financial firms will de facto not be able to keep an efficient risk management activity (particularly for the interest rate risk) by means of trading OTC derivatives to hedge their positions. This hedging is a vital part of the retail and real economy focused business of cooperative banks, providing an essential managing tool that then allows those banks to effectively finance individuals and SMEs. Due to these problems, the clearing obligation is unintentionally forcing smaller financial firms out of the derivatives markets. This reduces competition and shifts market balance. Pushing these companies out of business would deteriorate the credit conditions of SME segment even further and thus jeopardize the fragile recovery of European economies. This would be inconsistent with the Capital Market Union policy agenda aiming to remove barriers to the free flow of capital in Europe and the variety of other policy makers’ positive initiatives to stimulate economic growth in Europe.
With this in mind the EACB supports the exclusion from EMIR central clearing of all non- systemically important firms – that is also smaller Financial Counterparties (FC) and not just the Non- Financial Counterparties (NFC).
Furthermore, we would like ESMA to consider, that two legal entities forming part of the same group (as defined in Art. 2 no. 16 EMIR) should not count as separate members in the chain of intermediaries within the meaning of this RTS. For example, the clearing member and the clearing broker may be separate legal entities but belong to the same group. We suggest that in such case, the clearing broker should not qualify as the “client” of the clearing member within the meaning of this RTS. This would be in line with the general approach taken by EMIR to provide for the possibility of exemptions form the clearing requirements for groups of companies (as defined in Art. 2 no. 16 EMIR). Rather, the entire group is a service provider for its external clients (i.e. clients that do not belong to the group).
For further information on this topic or to read the EACB response, please download the PDF.