Following the aftermath of COVID-19 outbreak, the three European Supervisory Authorities (ESA’s) which include the European Banking Authority (EBA), the European Insurance and Occupational Pension Authority (EIOPA) and the European Securities and Markets Authority (ESMA) began issuing a series of regulatory flexibility provisions in order stimulate additional stability during the fragile market conditions.
The three ESA’s have now issued their first joint risk assessment report, which was released on 22nd September 2020, titled: “Joint Committee Report on Risks and Vulnerabilities in the EU Financial System”. The report explores a series risks related to COVID-19 in addition to offering a number of high-level recommendations for market participants to ensure a successful recovery to the region.
On page 5 of the report, a section on “Infrastructures and Services” explores in a short summary, the key successes of financial market infrastructures during a period of high EU trading volumes and excessive market volatility. Within the derivatives sector, the paper references the recent ESMA Report on Trends, Risks and Vulnerabilities No. 2, which highlights the successes of Central Clearing Counterparties (CCPs) at limiting procyclicality across the EU central clearing framework, without putting liquidity under any critical stress. The resilience of CCPs to limit procyclicality in the market and protect clearing member’s and default resources was showcased during the first quarter of 2020 and illustrates the efficiency of the CCP model during such heightened market turmoil.
At present, within a post-COVID market environment, it is clear that the ESA are taking a much more collaborative and proactive approach to ensure financial stability is fostered across the EU.
For more information:
Joint Committee Report on Risks and Vulnerabilities in the EU Financial System [PDF]