CCPs previously fell solely under the remit of national authorities as there was no uniform European regime regulating them. It was possible to enter into memoranda of understanding (MoU) in order to exchange information between the authorities of home and host member states. However, separate authorisation was sometimes required by the host state's authority when, for instance, a CCP intended to clear a foreign market. It was not always as integrated into supervision as is now the case with colleges, though.

There is now one college for every one of the 18 CCPs domiciled in the European Union. This article explains how the colleges are organised, what tasks they have and what their work looks like in practical terms.

EMIR as basis in law

All European CCPs are required to apply for authorisation to the competent supervisory authority pursuant to Article 14 of EMIR. The relevant authority – in the case of Germany, BaFin – sets up a college within 30 calendar days from the date it receives the complete application.

The college includes the following members: the relevant national competent authority; the competent authorities of the trading venues served by the CCP; the competent authorities of the clearing members of the CCP in the three Member States with the largest contributions to the default fund of the CCP, and the European Securities and Markets Authority (ESMA).

Purpose of colleges

Colleges enable a better assessment of the risks inherent in central clearing. While the central clearing obligation does minimise risks for the financial market as a whole, it naturally results in risk concentration in the CCPs. By exchanging information across borders, colleges capture risks for and in the markets where the CCP provides its services as well as risks for clearing members, other CCPs linked to this CCP and central securities depositories. In this way they ensure that risk assessments of market and institution supervision are collated.

In addition, colleges help ESMA work towards a greater convergence of national supervisory practices across Europe. As it is represented in all colleges – albeit without a vote – its focus lies not on day-to-day supervision, but rather on the improvement of administrative practice, the coordination between authorities and in particular on supervisory convergence by means of developing best practice. Harmonising national supervisory practices results in cross-border risks, too, becoming more easily comparable and detectable.

Last but not least, the colleges offer a communication platform for supervisory authorities from different EU member states. As supervisory cultures differ widely, the colleges are important vehicles for promoting personal exchange and the creation of new ideas and concepts between the states. Cooperation across Europe enables a new perspective on cross-border risks, which improves their assessment. The national supervisory authorities and ESMA work together in colleges, enabling them to face to face cross-border risks and so contribute to more stable financial markets.

Organisation

The establishment and functioning of colleges are based on written agreements between their members. ESMA has published such a sample agreement. As soon as a college has accepted the agreement, it is deemed to be established, pursuant to the Delegated Regulation on the colleges for central counterparties.

The college is chaired by the CCP's competent authority. BaFin is the national competent authority for German CCPs. It is the central contact point for any questions regarding the practical organisation of colleges and is entrusted with all administrative tasks.

Meetings

College meetings take place at least annually. In practice, however, the members of many colleges meet more often than that. Conference calls and written agreements are also an option and they count as meetings too. Unlike the regular meetings, though, they do not follow a fixed agenda. Rather, their contents depend on current issues, difficulties or relevant (market) events.

At the annual meetings, the CCP's competent authority gives an overview of the most significant events and developments and of supervisory activities of the past year. It also often presents an outlook of the college's tasks in the coming year. In order to ensure good communication and cooperation, representatives of the CCP under supervision are often invited to parts of the meeting so that the college's members may clarify any questions directly.

Tasks

The colleges participate in the proceedings led by the CCP's competent authority. These proceedings may involve the granting or withdrawal of the CCP's authorisation, authorising the expansion of the CCP's activities and services, validating major model or parameter changes or approving interoperability agreements between CCPs. The college has various powers in these areas, in particular concerning the preparation of joint opinions, in which it can voice its views regarding any of the above-mentioned points. These opinions must be taken into account by the national competent authority when it makes its decision. The college's ability to exert influence varies according to the type of proceedings.

In addition, the college also ensures prompt exchange of information among authorities and between authorities and ESMA. It coordinates supervisory reviews on the basis of CCP's risk assessment. Last but not least, the college also determines procedures and contingency plans for emergency situations, enabling a cross-border problem-solving approach.

The college may delegate certain tasks to individual members. This enables a division of work within the college and the application of expert judgement in solving certain issues.