ESMA Launches Fifth Stress Test Exercise For Central Counterparties That Includes Climate-Related Risks

On May 31, 2023, the European Securities and Markets Authority (ESMA) published a final report on the framework for the 5th ESMA Stress Test Exercise for Central Counterparties (CCPs). For the first time, climate risk has been included among the components of the test. In part, the inclusion of climate risk in the Stress Test evidences the regulator's interest in evaluating the impact that the energy crisis and market disruption following the COVID-19 pandemic have had on CCPs, and how CCPs have responded to such events.

ESMA has been running such Stress Tests since 2016, and they represent part of its strategy to assess and evaluate the resilience of CCPs, which form a core element of the financial system in the EU, providing stability and mitigating financial risks. ESMA describes the Stress Tests as a key tool to strengthen the flexibility and resilience of the CCPs, in order to enhance and ensure the stability and effectiveness of the EU capital markets.