Recovery and Resolution of CCPs

Key principles for an effective Recovery and Resolution regime of CCPs

• Continuity without recourse to public funds – The focus of a Recovery and Resolution regime should be the continuity of the CCPs’ critical services without having recourse to public funds.

• Safety – The resilience of CCPs is already ensured by global and EU requirements. The CPMI-IOSCO Principles for financial market infrastructures (PFMIs) set global standards for CCPs. In addition, all CCPs established in the EU must comply with stringent requirements set out in the EMIR regulation. This regulation sets minimum standards regarding the governance arrangements of CCPs, the way they conduct business (e.g. transparency), the capital they must hold and their risk management framework.

• Extremeness – The Recovery and Resolution regime would be applied in a very extreme scenario, far worse than that experienced at the height of the financial crisis in 2008.
Importance of incentives – A Recovery and Resolution regime should ensure the continuity of the CCP’s incentives structure, which supports an orderly default management.

• Structure – CCPs should be allowed to process the default management process and eventually implement their recovery plan before resolution authorities intervene, unless there is evidence that the recovery plan is likely to fail or to compromise financial stability.

• Transparency – The role of stakeholders and obligations must be agreed ex-ante, transparent and their contractual liabilities must be capped.

• Flexibility – CCPs should retain flexibility in designing recovery tools. Flexibility is also important in the manner that CCPs implement recovery tools in order to be able to manage different default situations.

• Global consistency – Legislators and regulators must ensure a consistent application of the recovery and resolution framework at an international level.

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