The Fault Line That Became a Framework: ESMA’s Guidance on CCP Resolution and the Limits of Operationalisation

When I published the volume Regulation and Supervision of the OTC Derivatives Market (Routledge, 2018), one of the structural fractures I identified in the post-crisis regulatory architecture was the absence of a dedicated resolution regime for central counterparties (CCPs). The European Securities and Markets Authority (ESMA)’s resolution briefing of 13 May 2026 on the operationalisation of the write-down and conversion of instruments (WDCI) tool is the most granular attempt yet to close that gap. This post welcomes that effort, while also examining some of its underlying assumptions and unresolved tensions.

From fracture to framework

The fracture I identified in 2018 was addressed, formally, by the EU Regulation on the Recovery and Resolution of Central Counterparties (Regulation (EU) 2021/23, ‘CCPRRR’), which established crisis framework for EU CCPs and conferred a toolkit of resolution instruments on national resolution authorities. The WDCI, the power to write down equity and convert unsecured liabilities into new ownership instruments, sits at its centre. Its conceptual lineage is transparent: it transposes the banking bail-in tool into the infrastructure resolution context, adapted, imperfectly, for the unique balance sheet characteristics of a CCP and its contractual entanglements with clearing members.

The Financial Stability Board’s April 2024 guidance on financial resources and tools for CCP resolution confirmed, at the international level, that while material advances had been achieved to enhance the resilience and recovery of CCPs, adequate liquidity, loss-absorbing, and recapitalisation resources must also be available in resolution to maintain the continuity of critical functions. ESMA’s 2026 briefing is the EU operationalisation of that international standard, and its most honest test.

What the briefing actually does

The briefing is non-binding. Its value, however, lies precisely in the granularity it introduces into what had previously remained, in many resolution plans, a declaratory commitment: the authority will apply the WDCI. The briefing also asks the harder question: how it will be applied, in what sequence, with what data, within what timeframe, and with what consequences for the CCP’s ownership structure and long-term viability.

The calibration methodology is technically coherent. It proceeds in four steps: determine total losses (from independent valuation); identify eligible instruments and liabilities, observing the mandatory exclusions under Article 33(4) of the CCPRRR including initial margins, fixed-remuneration obligations, and liabilities owed to other CCPs and central banks; estimate recapitalisation needs against the prudential framework, coordinated with the national competent authority; and finally calibrate write-downs and conversions in accordance with the national insolvency hierarchy, with equity reduced first and always before debt. The treatment of shares is consequential: where the CCP maintains a negative net value after full equity write-down, the instruments are cancelled, ensuring shareholder losses are absorbed before creditor losses, a foundational principle of resolution under Article 23.

Three structural tensions the briefing cannot dissolve

First, data and time. The briefing proposes a minimum dataset, balance sheet, liability categories, creditor hierarchy, ISIN identifiers, governing law, holder information, and insists that this must be available to the resolution authority within hours. This is sound. It is also vulnerable. FSB analysis found that cyber-theft scenarios triggered resolution in the majority of sampled CCPs. A CCP sustaining a catastrophic operational failure is unlikely to be in a position to produce, within hours, a complete and validated balance sheet. The briefing recommends dry-run exercises. That recommendation is more than procedural: it is the condition of the WDCI’s credibility.

Second, the ‘resolution weekend’ and its limits. In banking resolution, the concept of the resolution weekend—adopt the decision on Saturday, communicate before markets open on Monday—has become the operational standard. The briefing is candid that this model may not transfer to CCP resolution. In a default losses scenario, open positions accumulate risk in real time; the default management process, including the auction mechanism, may already be failing. As one FSB consultation response observed, if the auction has failed, that implies the value of the positions cannot at present be determined. The WDCI may therefore need to be calibrated under a provisional valuation, which creates an interaction with the no-creditor-worse-off principle that the briefing acknowledges without fully resolving. The probability of a subsequent valuation revealing a breach is not trivial.

Third, the third-country recognition gap. Where instruments are governed by non-EU law or held by entities in non-EU jurisdictions, the enforceability of the WDCI depends on recognition frameworks that vary fundamentally across jurisdictions. Article 53(2) of the CCPRRR requires contractual clauses binding holders to the tool’s application, but contractual clauses are only as enforceable as the legal order that governs them. Administrative recognition frameworks, as in the United Kingdom and Switzerland, offer more predictable outcomes than judicial recognition frameworks, as in the United States and Japan. The briefing recommends engagement with third-country authorities through resolution colleges and bilateral cooperation arrangements. These are necessary. They are not sufficient because enforceability ultimately turns on whether a third country’s own legal order will give effect to the resolution action; soft coordination cannot substitute for hard legal mechanisms, statutory recognition regimes, robust contractual recognition clauses under Article 53(2), or treaty-level arrangements capable of binding the foreign legal system itself.

The reorganisation phase: the underappreciated challenge

The briefing’s most practically prescient section concerns post-resolution reorganisation. A CCP that has been fully written down and recapitalised through liability conversion is simultaneously one that may have lost intra-group IT systems, HR arrangements, legal services, liquidity facilities, and market infrastructure access. The behaviour modification required of the institution following resolution is structural, operational, and reputational, along with financial. The briefing recommends preparatory mapping of intra-group interdependencies, retention strategies for key personnel, resolution-specific contractual clauses to prevent short-notice termination of critical services, and a ‘reorganisation playbook’ embedded in the resolution planning cycle. I support these recommendations and note that they reflect a sophisticated understanding of what a CCP actually is: not a balance sheet to be recapitalised, but an operational and relational infrastructure whose continuity depends on connections that ownership change can sever.

What this briefing confirms, and what it leaves open

I commend ESMA’s briefing as a genuine maturation of the regulatory architecture I identified as incomplete in 2018. The fracture has been legislatively addressed and internationally standardised through the FSB Key Attributes (revised 2024), and is now being operationalised with technical rigour that the CCPRRR alone did not provide.

The briefing’s non-binding character reflects not only regulatory pragmatism but also genuine uncertainty about whether a common operationalisation is achievable across the diversity of national legal frameworks, balance sheet structures, and governance arrangements of EU CCPs. The no-creditor-worse-off problem under provisional valuation remains open. The resolution weekend assumption cannot reliably apply to default losses scenarios. The third-country recognition gap is real and contractually uncontainable.

The regulatory architecture for CCP resolution is no longer absent. The distance between legal powers and operational readiness, between calibration methodology and crisis-speed execution, between contractual recognition clauses and cross-border enforceability, is precisely what a briefing of this kind makes visible. The fault line has been mapped, carefully and honestly.

Whether the structure built across it will hold is a question that only a crisis will answer.

Ligia Catherine Arias-Barrera is Professor-Researcher in Financial  Law at Universidad Externado de Colombia, where she leads CERES (Centro de Estudios Regulatorios de la Empresa Sostenible), and invited Lecturer at Queen Mary University of London. She is the author of Regulation and Supervision of the OTC Derivatives Market (Routledge, 2018) and The Law of ESG Derivatives (Routledge, 2025).