European Securities and Markets Association (ESMA)

ESMA Publishes Clearing Obligation CP for Additional IRS Classes

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On May 11, ESMA published a consultation paper (CP) on the clearing obligation for additional classes of interest rate derivatives, including fixed-to-floating interest rate swaps denominated in Czech Republic koruna (CZK), Danish krone (DKK), Hungarian forint (HUF), Norwegian krone (NOK), Swedish krona (SEK) and Polish zloty (PLN), as well as forward rate agreements (FRAs) denominated in NOK, SEK and PLN.

The CP follows the publication of clearing obligation CPs for interest rate derivatives classes, credit derivatives classes and foreign-exchange non-deliverable forward (NDF) classes, the publication of a final report on the clearing obligation for certain interest rate derivatives classes, and a feedback statement on NDF classes.

The draft RTS includes the following classes of derivatives:

  • fixed-to-floating CZK, DKK, HUF, NOK PLN swaps with maturities of up to five years;
  • fixed-to-floating SEK swaps with maturities of up to 15 years;
  • NOK and PLN-denominated FRAs with maturities of up to one year;
  • SEK-denominated FRAs with maturities of up to two years.

The CP does not address the issue of third-country entity intragroup transactions. ESMA states in paragraph 184 of the CP that, at the time of publication, it is not yet known how a provision related to the application of intragroup transactions concluded with third-country entities will be treated in the first RTS on the clearing obligation (for G-4 currencies). This aspect is therefore not addressed in the current CP/draft RTS.

ESMA Publishes an Opinion on Draft RTS on Clearing of Interest Rate Swaps under EMIR

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Article 5(2) of Regulation (EU) No 648/2012 (EMIR) requires the European Securities and Markets Authority (ESMA) to develop draft regulatory technical standards specifying, inter alia, the class of OTC derivatives that should be subject to the clearing obligation, the date or dates from which the clearing obligation takes effect, including any phase in and the categories of counterparties to which the obligation applies.

In October 2014, ESMA submitted a draft regulatory technical standard (RTS) on the clearing obligation in respect of interest rate swaps to the European Commission. On 18 December 2014, the Commission submitted to ESMA a modified version of the RTS (the “modified RTS”) introducing, among others, (1) amendments to the date on which the frontloading obligation starts to apply and (2) a new provision on the treatment of non-EU intragroup transactions. In the modified RTS, the Commission proposed that for a period of maximum three years, any third country shall be deemed equivalent within the meaning of Article 13(2) of EMIR. The effect would be to allow, for a period of three years, financial counterparties to apply for the intra-group exemption in respect of their transactions with any third-country entity in the absence of decisions on equivalence.

On January 29, ESMA published an opinion on the modified RTS stating that ESMA considers that the Commission’s proposal in relation to non-EU intra group transactions is not appropriate from a legal perspective. ESMA noted that (i) the adoption by the Commission of implementing acts on equivalence under Article 13 is the only procedure envisaged under EMIR to establish whether third-countries can be considered as having legal, supervisory and enforcement frameworks equivalent to EMIR; and (ii)any provision that has an effect equivalent to that of an implementing act on equivalence under Article 13, although limited in time and scope, but without the examination procedure referred to in Article 13(2), may have unintended consequences and therefore requires a very careful review. ESMA will explore, in coordination with the Commission, a different manner to incorporate that provision.  Opinion.

ESMA Consultation on Guidelines on Remuneration Policies and Practices under MiFID

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On September 17, the European Securities and Markets Association (ESMA) published a consultation paper on proposed guidelines on remuneration policies and practices under MiFID.

The proposed guidelines are intended to enhance the implementation of MiFID’s existing conduct of business and conflicts of interests rules in relation to remuneration, with a view to improving investor protection.

The guidelines focus on:

  • the governance and structure of remuneration policies and practices in the context of existing MiFID requirements; and
  • the control of risks created by remuneration policies and practices.

The deadline for comments is December 7, with a final report and guidelines expected to be published by Q2 of 2013.