Commission Delegated Regulation (EU) 2023/1616 of 3 May 2023 supplementing Regulation (EU) 2021/23 of the European Parliament and of the Council with regard to regulatory technical standards specifying the circumstances in which a person is deemed to be independent from the resolution authority and from the central counterparty, the methodology for assessing the value of assets and liabilities of a central counterparty, the separation of the valuations, the methodology for calculating the buffer for additional losses to be included in provisional valuations, and the methodology for carrying out the valuation for the application of the ‘no creditor worse off’ principle (Text with EEA relevance)

New Commission Delegated Regulation (EU) 2023/1616 in relation to the valuation assets and liabilities of central counterparties (CCPs) was published in the Official Journal (OJ) of the EU.
The Delegated Regulation specifically sets out regulatory technical standards (RTS) on the criteria for a „valuer“ of such assets and liabilities to be truly independent from both the central counterparty as well as the resolution authority (relevant for the second valuation in the process of resolution), the methodologies for assessing assets and liabilities, the methodology to determine additional buffers for preliminary valuations, and the criteria to assess the application of the „no creditor is worse off principle“ which is to be applied in the valuation process in accordance with Articles 25(6), 26(4) and 61(5) of the Regulation on a framework for the recovery and resolution of central counterparties (CCPRRR). Some key issues addressed in the Regulation are outlined below.
(1) Independence of valuers:
For a valuer of the assets and liabilities to be considered truly independent, such valuer must
– be independent from the authority supervising the CCP AND the CCP itself to prevent conflicts of interest;
– not have any material interests in the CCP (e.g. via relations to the management body, creditors, clients); and
– have adequate competencies and as well as experience in the audit of firms.
(2) General issues in the assessment of the value of the assets and liabilities of the CCP before and after resolution:
In this context, the Delegated Regulation specifies some general requirements for a valuation such as
– the valuer or resolution authority conducting a preliminary valuation must fairly represent the CCP’s financial position, considering known risks and opportunities of the CCP;
– assumptions used in the valuation must be disclosed and justified. Any significant deviation from the CCP’s management assumptions must be supported by evidence;
– the valuation must be a best „point“ estimate of the assets and liabilities;
– the measurement is consistent among portfolios, groups of assets, businesses, or the entire CCP; or
– the valuation must classify creditors based upon their creditor ranking and estimate claim values for each class, considering contractual rights. It should also estimate proceeds for each class in case of CCP winding up under normal insolvency proceedings.
It furthermore specifies the valuation date to be used by the valuer, the information that may be drawn from to perform a best estimate (e.g. market data, CCP records), the content of the valuation report that is to be prepared by the valuer, and how group or interoperability arrangements are to be taken into account in a valuation. Finally, the Delegated Regulation addresses factors that may affect a valuation and its outcome such as the business model of the CCP or a CCP’s capital, funding structure, or loss allocation, and areas that deserve special attention when performing a valuation.
(3) The methodology itself to be used in the valuation:
In this context, the Delegated Regulation specifies how a valuer shall select an appropriate measurement basis (hold value, disposal value) depending upon whether or not the CCP will retain the assets and the factors a valuer shall take into account to determine the expected future cashflows from the assets. Furthermore, valuers are required to implement a buffer in such valuation to accommodate for any potential additional losses that are not obvious at the point of the valuation.
(4) The steps to be taken to assess the applicability of the „no creditor is worse off“principle:
In essence, the „no creditor is worse off“ principle suggests that during a restructuring process, no individual creditor should end up in a worse position than it would have, had the CCP been liquidated and its assets distributed among the creditors. Therefore, valuers must assess the values of asset and liabilities under two circumstances: first, the CCP is restructured, but continues to exist and second, the CCP is wound-up (liquidated). The Delegated Regulation now specifies how a valuer shall go about this assessment, ranging from the identification of all assets and liabilities of a CCP, to the determination of the replacement costs incurred by clearing members in case of a liquidation. Finally, the Delegated Regulation sets out how this assessment is to be presented in a corresponding valuation report.