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The European Securities and Markets Authority’s (ESMA) latest round of stress tests for clearing and settlement firms found that these market infrastructure components should be able to withstand further market turmoil, but that operational risk exposures need attention.

The European Union’s securities markets regulator published the results of its fourth stress test of central counterparties (CCPs) on Tuesday. ESMA found that these financial market infrastructure firms weathered the sharp rise in market volatility following Russia’s invasion of Ukraine and remain resilient overall.

“CCPs have sufficient buffers to withstand adverse market developments in combination with the default of the two clearing members with the largest exposures,” ESMA said.

At the same time, the regulator reported that its stress test “also identified areas where some CCPs may need to strengthen their risk management frameworks, or where further supervisory work should be prioritized” to address certain risks.

The latest round of testing reviewed credit, concentration and operational risk at 15 CCPs, including a new review of the resilience of CCPs to operational events such as the failure of third-party service providers.

“ESMA’s fourth stress test found that the European clearing market is resilient and capable of withstanding severe stress scenarios, although certain areas need further strengthening,” said Klaus Löber, chair of the CCP supervisory committee, in a release.

In particular, the latest test found differences in the sources of operational risk, risk exposures and mitigation tools across CCPs that “need to be further assessed on an individual basis before issuing potential recommendations.”

ESMA also identified “varying degrees of operational reliability” among the CCPs that it reviewed and identified specific CCPs where further work is needed to assess their resilience and the possible need for improvements.

It also found differences in the exposure of CCPs to critical outsourcers.

“Further work is needed to analyze exposures to third-party service providers both at an individual CCP level, as well as system wide, to further strengthen operational resilience,” it said.