The European Commission's Equivalence Decisions for Third-Country Central Counterparties: Between Financial Stability and Political Considerations

Abstract

Central counterparties (CCPs) play an essential role in modern financial markets. Their market access is strictly regulated, not only domestically but also across borders. To gain access to European Union financial markets, third-country CCPs (TC-CCPs) must comply with the recognition procedure set up by the European Market Infrastructure Regulation (EMIR). One of the conditions in this procedure is that the European Commission has adopted an equivalence decision concerning the legal framework of the TC-CCP's home jurisdiction. Such a decision states that the foreign legal framework is deemed to be equivalent to that provided by EMIR. In this paper, we analyse the equivalence decisions and underlying legal frameworks of three different jurisdictions, i.e., the United Kingdom, the United States, and Switzerland, in order to distil common principles. We also identify common observations concerning the Commission's attitude when it adopts decisions. We find that the Commission demands strict equivalence but is also a negotiator with two faces. What is, at first glance, a technical assessment aimed at safeguarding financial stability is supplemented by broader political and practical considerations. We conclude that the current approach can help promote financial stability but warn that it creates uncertainty for the market players involved.