US-based clearinghouses face regulatory overlap in crisis under new EU law, ICE executive says

The EU’s pending law expanding post-Brexit oversight of foreign clearinghouses that do business in Europe would create regulatory overlap and delay in a crisis, the head of Intercontinental Exchange’s London clearinghouse said.

Finbarr Hutcheson, president of ICE Clear Europe, said the European Market Infrastructure Regulation known as Emir 2.2 would subject US-based clearinghouses to supervision by the EU, the UK and the US.

“Too many hands on the steering wheel in times of crisis is concerning,” he told an industry conference* recently in Boca Raton, Florida. “The worst possible scenario: a crisis situation where the reaction is too late because too many parties have to be consulted because they have some commonality but also some diversity of interests.”

“Having clarity around who’s in charge is pretty crucial to us,” Hutcheson added.

Atlanta-based ICE and the London Stock Exchange Group’s LCH have the two biggest derivative clearinghouses in London that would be affected by the law, which is on the brink of being finalized.

The law would give roles to the European Central Bank and the European Securities and Markets Authority, or ESMA, in oversight of clearinghouses outside the bloc after the UK leaves the EU.

After the law becomes final, EU regulators plan to seek input from industry and the public on how it should be implemented.

Jochen Metzger, a Deutsche Bundesbank official, defended the pending law.

“Those that bear the risk have to have their hand on the wheel,” he said at the same conference. “Unfortunately, those will be more than one.”

“We want to have a clear view of what’s going on,” Metzger added.

A US Commodity Futures Commission member expressed an additional concern about the new law: the possibility that ESMA would charge fees for US-based clearinghouses, or central counterparties, doing business in Europe.

“That’s something Congress has rejected for 30 years, that the CFTC would collect fees from third-country CCPs to fund oversight,” said CFTC member Dawn Stump, a Republican. “It’s a bit odd that our CCPs already regulated by the CFTC would be charged fees by ESMA.”

*Boca 2019 International Futures Industry Conference. Futures Industry Association. Boca Raton, Florida. March 13, 2019.