EMIR

EMIR (the European Market Infrastructure Regulation) imposes requirements in relation to derivative transactions and those counterparties who participate in such transactions. It also creates rules setting out how central counterparties and trade repositories must operate. Whilst it came into force in August 2012, certain requirements are still to come into effect and it has already been subject to proposals to amend it.

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.

Other EMIR proposals:

ESMA published a Consultation Paper earlier in 2018 with a proposal to amend the draft RTS regarding the treatment of intragroup transactions with a third country group entity.  The clearing obligation requires a range of interest rate and credit derivatives to be cleared. However, intragroup derivative transactions with a third country entity, and where certain conditions are satisfied, currently do not have to be cleared due to a deferred application date in the Delegated Regulations on the clearing obligation. However, the deferred dates are soon approaching.  The CP seeks views on a proposed extension of the temporary intragroup exemption.

EMIR updates from October:

Council of EU Presidency compromise proposal on Regulation amending EMIR supervisory regime for EU and third-country CCPs dated 25 October 2018 Proposal 26.10.18
BoE consults on 2018/19 fees for non-UK CCPs applying for UK recognition CP 25.10.18

EMIR updates from September:

The Financial Markets Law Committee report on arrangements in relation to CCPs Report 14.09.18
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