EMIR Review

Of Relevance to:
Firms subject to European Markets Infrastructure Regulation

The FCA has issued an EMIR update alert to inform us that the European Commission has published proposals to amend EMIR.

Aspects of the proposals include the removal of the frontloading and backloading requirements – frontloading concerns the clearing of contracts before the clearing obligation takes effect whilst backloading concerns the reporting of historical transactions – see Regulatory Roundups 71 and 62.

It is noted that the definition of a ‘financial counterparty’ as far as AIFs are concerned changes.

The current definition refers to “an alternative investment fund managed by AIFMs authorised or registered in accordance with Directive 2011/61/EU”.

This is amended under the proposals to read “an AIF as defined in Article 4(1)(a) of directive 2011/61/EU”. Article 4(1)(a) states:

‘AIFs’ means collective investment undertakings, including investment compartments thereof, which:

  1. raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors; and
  2. do not require authorisation pursuant to Article 5 of Directive 2009/65/EC;

As such, the amended definition makes no mention of the AIFM to be “authorised or registered” under the AIFMD for an AIF to be categorised as a ‘financial counterparty’.

Other proposals highlighted in the FCA alert include amendments to:

  • incentivise the offering of clearing services and increase access to clearing
  • increase requirements for Central Counterparties’ transparency
  • the risk-mitigation techniques for uncleared OTC derivatives by introducing a new supervisory pre-approval of firms’ risk management procedures
  • the registration and supervision of trade repositories as well as amendments to the requirements for trade repositories.

The alert also reminds us that the publication of Delegated Regulation 2017/751 in the Official Journal means that the date for the central clearing of OTC derivatives applicable to ‘Category 3’ counterparties has been pushed back until 21 June 2019.

As a reminder (see e.g. Regulatory Roundup 77) the EMIR clearing obligation will be phased in over a period of time depending upon the categorisation of the counterparties.

Counterparties are categorised under EMIR as follows (the below is a fair general summary but reference should be made to the precise wording contained within each of the Delegated Regulations mentioned in Delegated Regulation 2017/751):

  • Category 1 includes counterparties that are clearing members for at least one of the classes of OTC derivatives subject to the clearing
  • Category 2 captures those counterparties not falling within Category 1 above that are financial counterparties (or AIFs that are non-financial counterparties) and which belong to a group whose aggregate month-end average of outstanding gross notional amount of non-centrally cleared derivatives is above €8bn
  • Category 3 are financial counterparties (or AIFs that are non-financial counterparties) not falling into either of the two categories above
  • Category 4 comprises non-financial counterparties not belonging to Categories 1, 2 or 3 above.
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