The review focused on assessing whether the supervisory practices put in place by national competent authorities (NCAs) to assess the compliance of the central counterparties (CCPs) default management procedures (DMPs), are effective.
NCAs reviewed DMPs during the authorisation of CCPs or during the validation of changes; however, ESMA found that not all NCAs do a systematic review of its respective CCPs DMP tests and fire drills.
The authority found that there were certain areas where divergences emerged in the NCA’s supervisory approaches such as the supervision by NCAs of how CCPs manage their reliance on seconded traders, if used. In addition, it highlighted that some NCAs physically attend CCP fire drills while other NCAs are not present.
ESMA recommended that CCPs should undertake a regular and comprehensive review of CCPs DMP and NCAs should encourage CCPs to perform fire drills unannounced to most of their staff in order to assess the readiness of CCPs.
It suggested that by making these enhancements, it would allow CCPs to identify more realistically the impact a default may have on time and staffing.
Further, ESMA determined seven best practices from the responses it reviewed, with a view to promote these supervisory practices across NCAs and CCPs.
ESMA explained that it will use the findings from the peer review to enhance supervisory convergence between NCAs.