On-Site ESMA Inspections: Chancery Division Gives Procedural Guidance

Abstract

European Securities & Markets Authority v DTCC Derivatives Repository Ltd [2015] EWHC 1085 (Ch) (25 April 2015) is a first of a kind judgment given by Mrs Justice Rose. It involved the application of the European Securities and Markets Authority (ESMA) for authorisation to conduct an inspection at the premises of a trade repository, the DTCC Derivatives Repository Limited (DTCC), in England. Rose J began her judgment by clarifying that DTCC was not suspected of engaging in misconduct and that the intended inspection was simply part of ESMA’s general supervisory functions. DTCC, which was notified, agreed to cooperate fully with the visiting ESMA officials but the European agency nevertheless required the High Court’s authority to proceed with the inspection. In light of the novelty of the situation, the court handed down a short judgment to set out the principles that apply to the exercise of ESMA’s power. The court reiterated the Chancellor’s guidance that future applications for authorisation by either ESMA or the Financial Conduct Authority (FCA) under regulation 17 of the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 can be submitted for consideration on the papers in certain cases. Rose J imparted guidance that such applications should be issued by ESMA and allocated a case number rather than treated as a pre-issue application. Over the Counter Derivatives (OTCs) create a complex web of inter-dependence that may make it hard to identify the nature and level of risks involved. As a consequence, a risk to financial stability is posed. In light of this situation, the Pittsburgh summit of G20 leaders in September 2009 made a commitment that all standardised OTC derivative contracts should be cleared through a central counter-party and reported to trade repositories. The reporting requirement seeks to enable central storage of information on the risks inherent in derivatives markets and makes it easily accessible to ESMA and other regulators. The registration and supervision of trade repositories (to ensure that they are subject to strict operational, record-keeping and data-management requirements) is the responsibility of ESMA.

Keywords: CPR 1998, Chancery Guide, DTCC, EMIR, ESMA, EU, FCA, OTCs