Welsh Conservatives in the European Parliament
Dr Kay Swinburne MEP

Strasbourg Plenary Session, 11.12.13


This report on recovery and resolution of non-bank financial institutions was written to look at both the systemic weaknesses that the recent financial crisis has highlighted in our market infrastructure, and to assess the possible unintended consequences of the regulatory changes that have been implemented post-crisis.

While the work on recovery and resolution of banks has undergone a lot of international work, less has been done to improve the stability of our critical market infrastructure. Yet the level of interconnectedness of our entire financial system has long been identified as a future weakness in the financial markets as a whole.

We have seen what happens when one bank goes down, we have not yet seen what happens when a piece of critical market infrastructure collapses – and I hope we don’t any time soon.

This report focusses on that scenario, looking in particular at the possible failure of Central clearing houses and settlement systems, so called CSDs, and calling for further study of infrastructure risk in other sectorial areas such as insurance and asset management.

EMIR and the global derivatives reform agenda, once implemented, will mean  more transactions are centrally cleared at a regulated clearing house, and while these institutions performed well during the 2008 crisis, they did not at that time deal with the volume of transactions that they necessarily will in the future. 

CCPs have already been identified by the Financial Stability Board and CPSS IOSCO as a possible new source of systemic risk. The macro prudential tools for supervision that are provided for in EMIR should provide the necessary safeguards to ensure that CCPs really do bring stability and greater transparency to the financial markets, however in the event of a failure, we need to have in place a legally sound framework for what CCPs should do themselves in the form of recovery plans, and what powers supervisory authorities have to intervene in their operations.

This report emphasises that day to day operations should continue to create the right incentive structures for good governance of CCPs – so banks as clearing members are still highly incentivised to participate in auctions, so that CCPs themselves are not encouraged to clear products for which they cannot appropriately manage the risk, and end-users of these clearing members, the clients and investors are not exposed to more risk that they can understand or absorb.
It is clear that should a counterparty fail, or some operational failure cause the CCP to run out of margin, it has the default waterfall to protect members and the system users. The CCP default waterfall needs to be clearly defined so all market participants know what to expect to happen and in what order.

In debating the line between recovery and resolution the Parliament reached a strong consensus around the view that if a CCP was able to agree with its clearing members to further refills of the default fund or other similar measures then this could be done as part of the recovery phase – albeit under supervision, and where resolution authority would have the option of intervening from this point, should circumstances require it. However, if client assets were to be involved, by variation margin haircutting or any other tool to disseminate losses more broadly, this could only be done under the auspices of the resolution authority.

The original purpose of a CCP is to manage the risk of a financial contract failure by one party in such a way that it does not effect the rest of the market. If a CCP has exhausted its default waterfall and has reached the point at which it needs to raid pension funds and asset managers resources then it is a sign that there has been a failure of governance and risk mitigation at the CCP. In the absence of complete market failure it is likely that either they have mis-margined a product, or have not properly calculated the risk associated with market concentration in a product.
If a CCP’s management has the option of using client assets before exhausting its own capital and utilising CCP shareholder money, then there is no incentive for good governance to balance out their profit incentive. If Clearing Members know that if they do not participate in refills of the default fund or auctions of the positions of failing clearing members, they are able to pass the losses to their clients, they will have no incentive to properly participate in the risk committees of the CCP.

In this way, if client assets were to be involved in a CCP recovery plan, the entire system of Central Clearing that we have put in place since 2010 could be completely undermined.
CCPs work when the risk is mutualised. If it can be passed onto someone who has no say over the running of the CCP, then the system will be fatally flawed.

With regards to Central Securities Depositories many of the issues also stem from the recent global regulatory response to the crisis. CRD4 and EMIR require banks to hold more capital and all players to post collateral for their financial  trades. The result is that CSDs become ever more important because of their role in global collateral management. Some of these concerns will be addressed within the CSDR proposal currently being negotiated in trilogue, but I would also urge both the Commission and global regulatory bodies to take clear note of how the market is evolving in this area, particularly with regards to intraday liquidity requirements and collateral movements that seem to connect different global markets via the ICSDs.

My report asks for more work to be done in the area of Insurance and asset management as to some degree, I can see how normal bankruptcy procedures can be used for these entities, no matter how large they are . Yet as they expand beyond their traditional activities and their business activities evolve, supervisors will need to keep a close eye out to see whether stronger action might be necessary. In  the area of asset management, I believe that Securities Law Legislation, if it were proposed by the commission would negate the need for specific proposals for asset management. I therefore urge DG Markt to bring forwards this long awaited legislation.

Having safe, sound market infrastructure is critical to allowing capital to flow through our economy, the Market Infrastructure may be referred to as the plumbing but as the label suggests it is of critical importance and therefore I hope that the commission comes forwards with the specific proposals requested in this report promptly so as to ensure recovery and resolution plans are in place for all players so we may remain leaders in the global capital markets.

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Welsh Conservatives
04/12/2013

The European Commission has today designated European Protected Geographical Indication (PGI) status to the well-known Pembrokeshire Early Potato from West Wales.
 
The Pembrokeshire Early Potato was one of only three quality farm products whose applications for PGI status were approved today.
 
The EU PGI schemes protect product names against misuse and under these schemes more than 1200 products are already protected.
  
Commenting on this announcement from the European Commission today Dr Kay Swinburne MEP – who is from West Wales - said:
 
"I am delighted to see that this application to have "Pembrokeshire Earlies" added to the register of PGI products has been approved by the European Commission today."

"Achieving this prestigious status is a clear acknowledgment of the high-quality and distinctive produce we continue to deliver in Wales. Pembrokeshire Early Potatoes thoroughly deserve their place alongside the well-known food and drink products from right across the EU which already feature on the PGI register."

 
26/11/2013

Kay was delighted to host an event to celebrate Higher Education, Science and Innovation in Wales last night in the European Parliament.  The event builds on the British Council’s “Strategic Analysis of the Welsh Higher Education Sector, Distinctive Assets”.  A number of experts spoke to share their views of Welsh HE at the event and how it can develop in the future.
20/11/2013


In advance of the 'Fox-Hafner Report' vote on the single seat for the European Parliament, Kay and the other UK Conservative MEPs feel it is right to draw attention to the fact that the seven-year cost of the dual-seat arrangement comes to £928,000,000. Since her election to the European Parliament in 2009, Kay has strongly supported bringing the monthly Parliamentary meetings in Strasbourg to an end and therefore saving taxpayers a considerable sum of money.

20/11/2013


Kay was delighted to meet Malala Yousafzai, who was awarded the EU's Sakharov Human Rights Prize at the European Parliament today.
 

Following Malala’s speech to the European Parliament, Kay said, “What an inspirational speech Malala gave to the Members of the European Parliament today. As a mother of young children myself, I hope that they can also aspire to achieve like her. Malala is an exceptional young lady who has overcome adversity by tremendous force of character and a passionate belief in the right of everybody to enjoy and benefit from education.”   

12/11/2013



Kay was very pleased to meet with members of the Advanced Manufacturing Research Group at the European Parliament in Brussels, one of four groups set up in key Welsh research strengths to engage with EU research funds. The delegation visiting Brussels included representatives from Cardiff University, Bangor University, Swansea University and Trinity St.Davids University.

23/10/2013
In advance of tomorrow's European Council meeting of leaders, Dr Swinburne has echoed the recommendations made in a recent report published by a number of business leaders, which highlights the importance of removing barriers to business competitiveness in Europe and getting rid of burdensome legislation by cutting EU red tape.

 
Last year Dr Swinburne encouraged businesses in Wales to highlight to the European Commission which over-burdensome regulations they would like to see slashed, by writing to small businesses all over Wales and asking them to tell her their red-tape problems.
08/10/2013


Electronic cigarettes no longer face being taken off the shelves by the EU after Conservative MEPs were successful today in amending EU legislation on tobacco labelling.

Conservative MEP's led the amendment to defeat proposals that would have classified e-cigarettes as medicinal products, meaning they would have to undergo an overly burdensome and costly authorisation procedure, which would go beyond the procedures for traditional tobacco products... (Read more under 'Articles')

 


18/09/2013


Welsh Conservative MEP Kay Swinburne has been sitting down with leaders in Europe's biotech field to choose the top five candidates to compete in this year's EuropaBio Most Innovative EU Biotech SME Award.

As a member of this year's judging committee, Kay is once again supporting the EuropaBio award, which has attracted applications from all three sectors of biotechnology - healthcare, industrial and agricultural, from across the EU... (Read more under 'Articles')

11/09/2013


WELSH Conservative MEP Dr Kay Swinburne today hailed a vote in the European Parliament as a "wake-up call" in the battle to save Europe's endangered languages.

MEPs meeting in Strasbourg backed a report which calls on governments across the EU to develop action plans to encourage continued linguistic diversity.

The report, written by Corsican MEP François Alfonsi, also says governments should be "more attentive" to threats which may lead to languages becoming extinct.

Dr Swinburne, who was a shadow rapporteur for the report, has argued that Welsh can be seen as a positive example of language revitalisation which communities across the EU should follow... (Read more under 'Articles')

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Dr Kay Swinburne MEP
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Tel: 029 2054 0895
kayswinburnemep@welshconservatives.com

National Political Party: Conservative Party
European Group: European Conservatives and Reformists Group (ECR)

European Conservative and Conformist Group
© Copyright Kay Swinburne 2013 | All rights reserved. | Photographs of the Parliament supplied by Adam Issacs.
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