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.