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EC "goes too far" on derivs, says EBF

Thursday 16 September 2010 - by Andrew Hickley

The European Banking Federation has raised concerns that derivatives regulation may have been overzealous and says the European Commission goes too far in trying to achieve its regulatory objectives.

The EC yesterday released draft regulation that put forward a number of major changes to derivatives regulation, with an aim to improve transparency while making instruments safer.

Under the proposed changes, all trades in over-the-counter derivatives in the EU will now have to be reported to trade repositories.

Standardised OTC derivatives will also have to be cleared through central counterparties, which will ensure credit completion even if one side of the deal defaults.

EBF secretary general Guido Ravoet says: “We however feel that the Commission goes too far in trying to achieve its regulatory objectives. The EBF questions, for example, whether imposing a clearing obligation over a class of derivatives for which no CCP has received clearing authorisation, may contribute to reducing instability in the system.”


Ravoet also raises concerns that potentially higher levels of collateral and capital, required for the over the counter deals which are not cleared by a CCP, may be needed. This is in spite of the background of the more stringent capital requirements framework recently announced by the Basel Committee.

He says: “These measures are both crucial points in the strict regulatory agenda banks are facing and must be carefully weighed, both individually and as a whole."

However, he welcomes many aspects of the regulation.

Ravoet says: “From a users’ perspective, the EBF welcomes the inclusion of clearing members in a CCP Risk Committee, since they are those who ultimately bear the default risk of a CCP. The fact that interoperability may give rise to additional risks for CCPs was acknowledged, another positive point in the eyes of the EBF, which also strongly supports the Commission’s cautious approach of applying interoperability only to cash instruments.”


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