During the second quarter of 2020, 16 European CCPs Members of the European Association of CCP Clearing Houses (EACH) successfully performed Fire Drill Tests in Business Continuity Planning (BCP) mode. Fire Drill Tests are regularly performed by CCPs to confirm the readiness of a CCP’s default management structure. During a Fire Drill Test, CCPs usually test the operational readiness of the CCP’s staff, procedures, IT Systems and clearing members throughout the different layers of the default waterfall.
European CCPs are subject to rigorous standards laid down in both regional and EU legislation as well as in international guidance. Performing Fire Drill Tests in BCP mode represented an additional challenge that CCPs have successfully met, as the default management structure has been tested with some or all of the CCP and clearing members staff working remotely.
The successful results of these tests represent another milestone in the confirmation that European CCPs are resilient and well equipped to withstand extreme market developments. Earlier this year, the results of the ESMA EU-wide CCP Stress Tests “confirm(ed) the overall resilience of EU CCPs to common shocks and multiple defaults for credit, liquidity and concentration stress risks.”
The positive results of the Fire Drill Tests in BCP mode and the ESMA EU-CCP Stress Tests add to the robust performance of CCPs during the COVID-19 extreme market environment. ESMA has acknowledged this in their Stress Tests report by stating that “EU CCPs remained resilient through the (COVID-19) crisis, despite the increased market volatility and operational risk.”