Consequently, CCPs registered record volumes, in March 2020, in some case for more than 15 trillions of euros, reflecting both cash raising transactions but also special collateral borrowing transactions (notably for French and German securities), leading for the former to temporary wider rates and for the latter to tighter repo rates. Of note also, despite increase in margins demands (associated with higher volumes), breaches and fails have also remained very low. The structure of repo clearing in Europe, significantly changed since the migration in 2018–2019 of all euro-denominated sovereign debt transactions from CCP LCH Ltd to the Paris-based LCH SA. With this migration, around 700 billion euros have been transferred to LCH SA and hence to an EU-based CCP. Today, the European repo clearing sector is largely conducted in two European CCPs, LCH SA which has a dominant market share and Eurex Clearing. From a financial stability perspective, this relocation of euro-denominated repos within the euro zone is welcome, in particular given the key role of these instruments, essential for government funding. It ensures that this activity is subject to the stringent requirements set by EMIR, under the close and integrated supervision of national and European authorities through EMIR Colleges, and shields this important funding market from any potential regulatory divergence or supervisory conflicting interest between UK and EU competent authorities. This successful migration of repo activity could serve as a reference to shape future evolutions on other clearing segments that are systemic to EU’s financial stability.
The financial institutions are expected to identify, assess and understand the money laundering and terrorist financing risks at the institution level and the Financial Institutions’ leadership and senior management need to be involved and be engaged in the risk assessment process. The institution’s risk level assessment can be leveraged through thematic money laundering and terrorist financing risks assessment conducted at by the institution or periodic reporting by compliance department such as updates on STRs submissions, investigation orders received or findings from internal auditors. By getting the leadership and senior management involved in the risk assessment process, the institution would be better informed in making business decisions, such as when venturing into new markets, services or geographical areas, especially when the new area is vulnerable or attractive to money laundering and terrorist financing risks. In addition, having a complete understanding on the risks will assist the institution in allocating resources for the compliance function, including recruitments of competent personnel and investment into management information system. The communication of money laundering and terrorist financing risks identified is equally important. The risks identified should be shared throughout the organization especially with key business units and the front liners. The risks identified shall also act as a guide in coming up with policies procedures and training needs requirements and its robustness for different business units. In return, the business units should be able to provide feedback to the compliance or risk management departments on any new or emerging risks that they face or encounter in their daily business operations.