ISDA Critiques ESMA Approach to CCP Climate Stress Testing

ISDA responded to the European Securities and Markets Authority's ("ESMA") "call for evidence" on a proposed climate risk stress testing procedure for central counterparties ("CCPs").

ISDA recommended that:

• the framework differentiate between operational and financial risk, with (i) operational events to be addressed by a CCP's business continuity planning and (ii) financial impacts to be addressed in a CCP's stress test scenarios; and

• ESMA incorporate stress test scenarios developed by other interested parties to foster a "globally consistent" approach.

ISDA also requested that ESMA consider "how the components of the stress scenario are actually relevant for short term shocks to a CCP's financial viability rather than components that should be addressed through business planning/strategy review and risk management practices."