EACH publishes proposals for CCP risk model changes under EMIR
30 June 2020 Brussels
Image: RomoloTavani/Shutterstock
The European Association of CCP Clearing Houses (EACH) has published its proposals for a robust and efficient process for CCP risk model changes and validations under EMIR Article 49.
In the review, EACH suggested that the proportionality of new requirements be considered.
The association said if thresholds for model changes become too tight, implying that any change is deemed significant, the incentives for CCPs to enhance the robustness of their risk systems is reduced.
Similarly, additional and detrimental regulatory arbitrages could be introduced when compared with CCPs in other jurisdictions, where changes than in the EU can take up to a year may be implemented in days.
Further to this, EACH noted that guidance should be developed to instruct CCPs how the validation process will be implemented.
This includes guidance, for instance, on timelines, required documentation and testing, success criteria, approval process, and remediation actions.
The currently reduced clarity on requirements for the application pack can lead to multiple re-submissions and limited transparency towards clearing members and other stakeholders, according to the association.
EACH explained that its suggestions would improve the ability of CCPs to manage risk in a more effective manner while being subject to the adequate supervisory scrutiny.
Elsewhere, the association highlighted that CCPs continuously work to ensure their risk management frameworks are robust and up-to-date.
In particular, EACH said: “CCPs implement and maintain dedicated model risk frameworks to govern the life-cycle of the models and methodologies used to assess risk.”
“The EMIR 2.2 legislation includes important alterations to the way CCPs manage their models and parameters are introduced under EMIR Article 49,” EACH said.
EACH concluded: “EACH Members welcome the consideration given by authorities to the need to differentiate significant and non-significant changes under Article 49 of EMIR. This paper has provided suggestions based on CCPs’ experience about what should, from our point of view, be
considered a significant change under EMIR Article 49. It has also provided some proposals to
make the process for submitting, validating and approving a significant change more efficient.
EACH believes that implementing these suggestions and proposals would improve the ability
of CCPs to manage risk in a more effective manner while being subject to the adequate
supervisory scrutiny.”
In the review, EACH suggested that the proportionality of new requirements be considered.
The association said if thresholds for model changes become too tight, implying that any change is deemed significant, the incentives for CCPs to enhance the robustness of their risk systems is reduced.
Similarly, additional and detrimental regulatory arbitrages could be introduced when compared with CCPs in other jurisdictions, where changes than in the EU can take up to a year may be implemented in days.
Further to this, EACH noted that guidance should be developed to instruct CCPs how the validation process will be implemented.
This includes guidance, for instance, on timelines, required documentation and testing, success criteria, approval process, and remediation actions.
The currently reduced clarity on requirements for the application pack can lead to multiple re-submissions and limited transparency towards clearing members and other stakeholders, according to the association.
EACH explained that its suggestions would improve the ability of CCPs to manage risk in a more effective manner while being subject to the adequate supervisory scrutiny.
Elsewhere, the association highlighted that CCPs continuously work to ensure their risk management frameworks are robust and up-to-date.
In particular, EACH said: “CCPs implement and maintain dedicated model risk frameworks to govern the life-cycle of the models and methodologies used to assess risk.”
“The EMIR 2.2 legislation includes important alterations to the way CCPs manage their models and parameters are introduced under EMIR Article 49,” EACH said.
EACH concluded: “EACH Members welcome the consideration given by authorities to the need to differentiate significant and non-significant changes under Article 49 of EMIR. This paper has provided suggestions based on CCPs’ experience about what should, from our point of view, be
considered a significant change under EMIR Article 49. It has also provided some proposals to
make the process for submitting, validating and approving a significant change more efficient.
EACH believes that implementing these suggestions and proposals would improve the ability
of CCPs to manage risk in a more effective manner while being subject to the adequate
supervisory scrutiny.”
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