CySEC Circular C572: ESMA’s Guidelines on CCP Recovery Plan Scenarios Drive Industry Progress
In an important development for the financial industry, the European Securities and Markets Authority (ESMA) recently published the Guidelines on CCP recovery plan scenarios. The Cyprus Securities and Exchange Commission (CySEC) wishes to remind all regulated entities of this significant release on March 24, 2023. These guidelines have been expertly translated into all official languages of the European Union, ensuring accessibility across the region.
CX Financia has prepared this commentary to shed light on the recently released Guidelines on CCP recovery plan scenarios by the European Securities and Markets Authority (ESMA)
Circular C572 applies to the Regulated Entities as described below:
- Cyprus Investment Firms (CIFs)
- UCITS Management Companies (‘UCITS MC’)
- Alternative Investment Fund Managers (AIFMs
Purpose and objectives
Applicable to national competent authorities and CCPs authorized under Article 14 of Regulation (EU) 648/2012 (EMIR), these guidelines serve a twofold purpose. First and foremost, they aim to establish consistent, efficient, and effective supervisory practices. By doing so, they ensure the standard, uniform, and consistent application of Article 9(1) of CCPRRR.
One of the key objectives of the guidelines is to provide a clear framework for the range of recovery plan scenarios that CCPs must consider when formulating and maintaining their recovery plans. This framework also assists competent authorities in assessing the viability and effectiveness of these plans.
The underlying motivation behind preparing a diverse range of recovery plan scenarios is to identify forward-looking events that may cause severe distress to a CCP. These scenarios act as stress tests, allowing CCPs to evaluate the effectiveness of their recovery measures and determine the adequacy of indicators included within their recovery plans.
ESMA’s guidelines content on CCP recovery plan scenarios
Guideline 1: Establishing the appropriate number of scenarios to be included in CCP recovery plans
Guideline 2: Types and sources of risk to be covered by CCP recovery plan scenarios
Guideline 3: Principles for determining the magnitude of CCP recovery plan scenarios
Guideline 4: Information to be included in the description of CCP recovery plan scenarios
Guideline 5: Maintenance of CCP recovery plan scenarios
Effective Date application
Effective May 24, 2023, these guidelines mark a significant step forward in strengthening the financial industry’s resilience. Regulated entities are urged to familiarize themselves with the guidelines’ content and ensure compliance with the prescribed requirements.
Furthermore, CySEC is pleased to announce its full adoption of these guidelines. Incorporating them into its supervisory practices and regulatory approach, CySEC underscores its commitment to promoting a robust and secure financial environment.
Consistency and Resilience in the European Union
The release of these guidelines reflects the ongoing efforts of regulatory bodies to enhance supervisory practices and promote consistency across the European Union. By establishing a standardized approach to recovery plan scenarios, these guidelines contribute to the stability and integrity of the financial system.
With these guidelines in place, the European financial industry takes a significant stride towards safeguarding its stability and resilience in the face of potential challenges.
CX Financia is your trusted partner
With extensive corporate and compliance services expertise, CX Financia is well-positioned to assist regulated entities in implementing CySEC’s requirements. Our team of professionals can provide solutions and guidance in developing robust recovery plans, ensuring adherence to regulatory requirements, and optimizing supervisory practices. Whether you require assistance in scenario planning, indicator assessment, or overall compliance support, CX Financia is committed to empowering your organization’s resilience and success.