What is EMIR?
EMIR applies to firms, including those who are not in the financial services industry, who enter into any form of derivative contract. It applies indirectly to non-EU firms who trade with EU firms. It also establishes common standards in relation to the organisational arrangements, conduct of business standards and prudential standards for central counterparties (CCPs) and trade repositories. It imposes:
- A clearing obligation on certain standardised over the counter (OTC) derivative transactions;
- Additional requirements for any OTC derivatives that are not centrally cleared (in order to mitigate the risks associated with uncleared trades);
- A reporting requirement for all trades in derivative contracts;
- Obligations on central counterparties and trade repositories.
Proposals to amend EMIR
There are several workstreams which propose to amend EMIR:
EMIR Refit proposal
This follows a report published in November 2016 on the outcome of a review of EMIR under Article 85(1). It concluded that whilst fundamental changes to EMIR were not required, there was potential for the simplification of some rules and to reduce the burden on some derivative counterparties. Some of the key changes proposed are to in relation to:
- The clearing obligations for non-financial counterparties;
- The clearing obligation for small financial counterparties;
- The clearing obligation for pension funds;
- The risk mitigation techniques for non-cleared OTC derivative contracts; and
- The reporting obligations.
Most recently the European Parliament voted in a plenary session to adopt the proposed Regulation amending EMIR. The next stage is for the proposal to be considered by the European Commission and the Council of the EU which is scheduled for July 2018.
Legislative proposal to amend the supervisory regime for EU and third country CCPs
This proposes to amend EMIR in relation to CCPs. It has specific amendments for the regime for EU and third country CCPs. The Commission wants to introduce a more pan-European approach to supervising CCPs and proposes a newly created supervisory mechanism (called the CCP Executive Session) which will be established within ESMA. It wants to make the process for recognising and supervising third country CCPs more rigorous and proposes a two tier system for classifying third country CCPs:
- Non systemically important CCPs will be able to operate under the EMIR equivalence framework;
- Systemically important CCPs will be subject to stricter requirements.
Most recently the Council of the EU published a revised proposal for a consolidated compromise text focusing on the procedures and authorities involved in the authorisation and recognition of CCPs and third country CCPs. The next step will be for three way negotiations between the Parliament, Commission and Council once member states have agreed their approach.