The European Commission should develop better clarification strategies on the margin requirements for credit, market, and counterparty credit risk between the Capital Requirements Regulation (CRR) and the European Market Infrastructure Regulation (EMIR), according to a joint report by the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) on the functioning of the two regulations.
With the report, ESMA and EBA aimed to assessed any potential duplication of requirements for derivative transactions with the ultimate goal of avoiding regulatory risks, as well as undue increased monitoring costs for competent authorities.
They found that requirement clarification should ensure that only risks not already covered by specific financial resources for activities not related to clearing are to be covered by CRR requirements. This exclusion should also be extended to activities covered by interoperability arrangement, the report indicated.
There are requirements in the regulations that are duplicative, redundant, or non-applicable and they do not adequately serve neither central counterparty (CCPs), nor regulators. The ESMA and the EBA have, in some instances, provided recommendation how these issues could be handled.
The report covers several main issues and provides analysis on the main potential duplicative requirements in the following segments:
- capital requirements for CCPs holding a banking licence
- leverage ratio, net stable funding requirements, and liquidity coverage ratio
- large exposure requirements in the CRR
- the difference in MPoR application across the regulations of the CRR and the EMIR
- exposures to CCPs
To see the full ESMA/EBA report, please click here.