European Union : Methodology for Mandatory Peer Reviews in relation to CCPs’ authorisation and supervision under EMIR

Methodology for Mandatory Peer Reviews in relation to CCPs' authorisation and supervision under EMIR

05 January 2017 | ESMA71-1154262120-155

1. Introduction

2. The European Regulation No 648/2011 on OTC derivatives, central counterparties and trade repositories (EMIR) requires ESMA to undertake peer reviews analysing supervisory activities of all competent authorities in relation to the authorisation and supervision of CCPs 2 . Based on the experience of a first peer review undertaken in 2016 in the context of EMIR, ESMA's Board of Supervisors decided that a Methodology for this new type of peer reviews to be conducted at least annually should be prepared, building on the existing methodology.

3. Indeed, ESMA has a long experience in running peer reviews that are key tools for supervisory convergence, as recognised under Article 30 of Regulation (EU) No 1095/2010 (hereafter "ESMA Regulation") mandating ESMA to periodically organize and conduct peer reviews of some or all activities of national competent authorities ("NCAs") to further strengthen consistency in supervisory outcomes. The procedures for such peer reviews are laid down in the ESMA Review Panel Methodology (ESMA/2013/1709)3.

4. In addition to EMIR, several sectoral legislations put in place in the aftermath of the financial crisis also explicitly require ESMA to undertake peer reviews and specify the scope and the frequency of these reviews. These so-called "mandatory peer reviews" have therefore different characteristics from the peer reviews that ESMA has conducted so far under Article 30 of the ESMA Regulation (referred to as "discretionary peer reviews" in the present Methodology), where ESMA has the discretion to select the scope, topic and duration of the reviews. Under EMIR, ESMA has been entrusted with a specific role to enhance supervisory convergence, the scope of peer reviews is defined and their frequency is annual. ESMA's 2016 Supervisory Convergence Work Programme (SCWP) 4 also recognised that it may not be feasible or desirable to apply the full ESMA Review Panel Methodology for mandatory peer reviews.

5. Given that the only experience of mandatory peer reviews until now is related to EMIR, Article 21(6)(a), it seems appropriate to adopt a pragmatic approach and to restrict the application of this Methodology to peer reviews undertaken in application of Article 26 of EMIR. The scope might be reconsidered at a later stage when the mandatory peer reviews foreseen under other sectoral EU legislation will need to be launched. By now, the Alternative Investment Fund Managers Directive (AIFMD) requires ESMA to conduct, on an annual basis, a peer review analysis of the supervisory activities of NCAs in relation to the authorisation and the supervision of non-EU AIFMs. Similarly, the Regulation on improving securities settlement in the European Union and on Central Securities Depositories (CSDR) requires ESMA to organise and conduct, at least every three years, a peer review of the supervision of CSDs which make use of the freedom to provide services in another Member State or to participate in an interoperable link. Last, the upcoming

   1 OJ L 201, 27.07.2012, p.1

   2 EMIR Article 21(6)(a)

   3 It has to be noted that since the adoption of the ESMA Review Panel Methodology, the Review Panel has been transformed into the Supervisory Convergence Standing Committee, in line with ESMA's Strategic Orientation 2016-2020.

   4 Para 81b, how to accommodate and carry out the various mandatory peer reviews written into various pieces of legislation (EMIR, AIFMD, CSDR), of which the EMIR requirement in relation to CCPs is already in force and others will be activated in the coming years; it may not be feasible or desirable to apply the full methodology used for other peer reviews in such cases but if not an appropriate alternative needs to be identified;

   regulation relating to prospectuses may require ESMA to conduct mandatory peer reviews in the future.

6. Peer reviews should always be undertaken with a solid methodological background to allow for objective assessments and balanced comparisons. There is a need to ensure, to the extent possible, methodological consistency among the "discretionary" and the "mandatory" peer reviews. In this context, it has to be recalled that the Supervisory Convergence Standing Committee's (SCSC) responsibilities and tasks regarding peer reviews are to ensure consistent methodologies and rules of procedure for the various mandatory peer reviews under the responsibility of ESMA as outlined in the Terms of References of the Committee5.

   5 B. 7th indent (ESMA/2016/229)

7. Legal Basis and Scope

1. According to Article 21(6) of EMIR, ESMA shall fulfil a coordination role between competent authorities and across colleges with a view to building a common supervisory culture and consistent supervisory practices, ensuring uniform procedures and consistent approaches, and strengthening consistency in supervisory outcomes.

2. In particular, according to Article 21(6)(a) ESMA shall, at least annually conduct a peer review analysis of the supervisory activities of all competent authorities in relation to the authorisation and the supervision of CCPs in accordance with Article 30(2) of ESMA Regulation6.

3. In line with Article 30(2) of the ESMA Regulation, the peer review will cover:

4. the adequacy of resources and governance arrangements of the competent authority, with particular regard to the effective application of the regulatory technical standards and implementing technical standards referred to in Articles 10 to 15 of the ESMA Regulation and of the acts referred to in Article 1(2) of the ESMA Regulation and the capacity to respond to market developments;

5. the degree of convergence reached in the application of Union law and in supervisory practice, including regulatory technical standards and implementing technical standards, guidelines and recommendations adopted under Articles 10 to 16 of the ESMA Regulation, and the extent to which the supervisory practice achieves the objectives set out in Union law;

6. best practices developed by some competent authorities which might be of benefit for other competent authorities to adopt;

7. the effectiveness and the degree of convergence reached with regard to the enforcement of the provisions adopted in the implementation of Union law, including the administrative measures and sanctions imposed against persons responsible where those provisions have not been complied with.

8. This Methodology is without prejudice to the specific tasks of ESMA as established by EMIR and the ESMA Regulation.

6 OJ L331, 15.12.2010, p.84