EMIR

OJ Publishes Ninth Implementing Regulation Extending Transitional Periods Related To Own Fund Requirements for CCP Exposures

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Commission Implementing Regulation ((EU) 2018/815) on the extension of the transitional periods related to own funds requirements for exposures to central counterparties (“CCPs“), set out in the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) and the European Market Infrastructure Regulation (“EMIR“) (Regulation 648/2012) has been published in the Official Journal of the EU (“OJ“).

Commission Implementing Regulation ((EU) 2017/2241) was published in the OJ on June 4, 2018. It is available here. The Implementing Regulation will enter into force on June 7, 2018.

ESMA Consults on Guidelines on CCP Conflicts of Interest Management Under EMIR

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On June 1, 2017, ESMA published a consultation paper (ESMA70-151-291) on guidelines relating to central counterparties (“CCPs“) management of conflicts of interest.

ESMA explains that the European Market Infrastructure Regulation (“EMIR“) only contains generic provisions relating to CCPs’ conflict of interest management. It requires CCPs to act in the best interests of their clearing members and the clients. Therefore, CCPs need to have in place robust organizational arrangements and policies to prevent potential conflicts of interest and to solve them if they occur. ESMA believes that further guidance would be beneficial and further facilitate supervisory convergence on this area.

The purpose of the guidelines is to set out the criteria CCPs should apply to avoid or mitigate the risks of conflicts of interest and to ensure a consistent implementation across CCPs. Areas addressed by the guidelines include:

  • written arrangements to identify and manage any potential conflicts of interest between CCPs, clearing members and clients;
  • where written arrangements are not sufficient, disclosure of conflicts of interest to the clearing member or clients before entering into any new transactions; and
  • possible conflicts with a CCP’s parent undertaking or subsidiary.

The consultation will close on August 24, 2017, upon which ESMA will consider the feedback received to the consultation. ESMA expects to publish a final report on the guidelines by the end of 2017.

European Commission to Publish Legislative Proposal to Revise the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (“EMIR”)

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On January 31, 2017, the European Commission published a speech by Valdis Dombrovskis, Commission Vice President, on finance for growth in manufacturing.

The speech included the Commission’s recent review of EMIR, the outcome of which the European Commission reported on in November 2016.

Mr. Dombrovskis commented that, during the review process, the European Commission received substantial feedback on the rules governing derivatives. Several respondents, including regulators and industry participants, argued that there is scope to make the rules and reporting obligations in this area more proportionate, particularly for non-financial counterparties.

The European Commission agrees with this feedback and intends to address some of the issues by revising existing technical standards to make reporting standards simpler and clearer. It will publish its legislative proposal to revise EMIR in spring 2017.

ESMA Publishes New Methodology for Mandatory Peer Reviews of CCPS Authorization and Supervision Under EMIR

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On January 5, 2017, the European Securities and Markets Authority (“ESMA“) published its methodology (ESMA71-1154262120-155) for mandatory peer reviews relating to the authorization and supervision of central counterparties (“CCPs“) under the European Market Infrastructure Regulation (“EMIR“) (the Regulation on OTC derivative transactions, CCPs and trade repositories (Regulation 648/2012)).

The scope of peer reviews under EMIR is defined, and ESMA has a specific role to further supervisory cooperation. Based on the experience of the first peer review undertaken in 2016 in the context of EMIR, ESMA’s Board of Supervisors decided that a methodology for the new type of peer reviews should build on the existing methodology. Further reviews will be conducted on, at least, a yearly basis.

The methodology sets out information relating to the legal basis and scope of the review, the topics covered, the assessment specifications and the approach taken to the questionnaire and report.

The application of the methodology will be restricted to peer reviews undertaken in the application of Article 26 of EMIR. This scope may be reconsidered by ESMA at a later date, when the mandatory peer reviews relating to other EU legislation need to be launched (for example, in relation to the Alternative Investment Fund Managers Directive (2011/61/EU) and the Regulation on improving securities settlement and regulating central securities depositories (Regulation 909/2014)).

European Commission Adopts Delegated Regulation on RTS on Minimum Details of Data to Report to Trade Repositories

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On October 19, 2016, the European Commission adopted a Delegated Regulation amending Delegated Regulation 148/2013 supplementing EMIR (Regulation 648/2012) as regards regulatory technical standards (RTS) on the minimum details of the data to be reported to trade repositories (C(2016) 6624 final).

EMIR requires all counterparties and central counterparties (CCPs) to report the details of any OTC derivative contract they have concluded and of any modification or termination of the contract to a trade repository.

The Delegated Act updates existing standards that were published in the Official Journal of the EU (OJ) in February 2013 (see Legal update, Delegated regulations on EMIR regulatory technical standards published in Official Journal). It reflects recent developments and experience gained in the area of trade reporting. The revised RTS aim to:

  • Introduce new fields and values to reflect market practice or other necessary regulatory requirements.
  • Clarify data fields, their description or both.
  • Adapt existing fields to the reporting logic prescribed in existing Q&As or reflect specific ways of populating them.

The Commission has also published an Annex, which sets out the counterparty data and common data details to report to trade repositories.

The next step is for the Council of the EU and the European Parliament to consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the OJ.

European Commission Adopts Delegated Regulation on RTS on Risk Mitigation Techniques for Uncleared OTC Derivative Contracts under EMIR

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On October 4, 2016, the European Commission adopted a Delegated Regulation supplementing EMIR (the Regulation on OTC derivatives, CCPs and trade repositories) (Regulation 648/2012) with regulatory technical standards (“RTS”) on risk mitigation techniques for uncleared OTC derivative contracts, together with related Annexes (C(2016) 6329 final).

The Delegate Regulation sets out the levels and types of collateral that OTC derivatives counterparties must exchange bilaterally if the transaction is not cleared through a central counterparty (“CCP”). In the event that one counterparty to the transaction defaults, the margin collected will protect the non-defaulting counterparty against resulting losses.

The Joint Committee of the European Supervisory Authorities (ESAs) submitted the final draft RTS to the Commission in March 2016. In July 2016, the Commission informed the European Banking Authority that it intended to endorse the draft RTS with some amendments, including in relation to the concentration limits for pension scheme arrangements and the timeline for.

The Council of the EU and the European Parliament will now consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU.

European Commission Addendum to Draft RTS on Margin Requirements for Uncleared OTC Derivatives under EMIR

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On August 2, 2016, the European Commission published an addendum to the draft regulatory technical standards (RTS) on margin requirements for uncleared OTC derivatives under Article 11(15) of the European Market Infrastructure Regulation (EMIR).  This follows an endorsement by the European Commission on July 28, 2016 of the draft RTS with amendments.  The ESAs will have 6 weeks to respond to these amendments before resubmitting them to the Commission in the form of a formal opinion.

In the addendum, the Commission states that there are some clarifications to be made to the revised draft RTS on margins in Articles 34 and 36 on application timing and in Annex III where a formula is missing. The intention of the Commission is to have the first wave of the initial margin requirements applied from the date one month after the date the RTS enter into force. This was the intention of paragraph 1 in Article 36. However, the Commission considers that the reading of the interaction of paragraph 1 with the other paragraphs in Article 36 is not clear and that the revisions set out in the addendum are therefore necessary.

Commission Adopts Proposal to Incorporate ESAs into EEA Agreement

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On June 2, 2016, the European Commission published a press release announcing that it had adopted a proposal for a Council decision on the position to be taken by the EU on the incorporation of the Regulations on the European Supervisory Authorities (ESAs), and some of the related Regulations and Directives, into the Agreement on the European Economic Area (EEA).

The acts to be incorporated into the EEA Agreement include the ESAs Regulations (EBA, EIOPA and ESMA Regulations), the European Systemic Risk Board Regulation, the Alternative Investment Fund Managers Directive and related Delegated Acts, the Short Selling Regulation and related delegated acts, the European Markets Infrastructure Regulation (‘EMIR’) and the Credit Ratings Agency Regulations.

This is an important step towards the extension of the European System of Financial Supervision (ESFS) to the EEA EFTA countries: Norway, Iceland and Liechtenstein. The Commission explained that incorporating these acts into the EEA Agreement would ensure strong and co-ordinated financial supervision throughout the EEA.

ISDA Publishes Updated EMIR Classification Letter

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On April 13, the International Swaps and Derivatives Association, Inc. (“ISDA”) published an updated classification letter that enables counterparties to notify each other of their status for clearing and other regulatory requirements under the European Market Infrastructure Regulation (“EMIR”).

The updated letter covers the clearing obligation for certain interest rate derivatives classes denominated in EEA currencies and certain credit default swap index classes. The ISDA EMIR classification letter allows market participants to bilaterally communicate their status to their counterparties by answering a series of questions.

The updated letter makes several substantive amendments, including:

  • aligning the definition of “Category 1 entity” to the one used in the final, published version of the G-4 interest rate products regulatory technical standards (“RTS”) (which come into force from June 2016); and
  • providing the ability for entities to make classifications in respect of the draft RTS for EEA rates and the RTS on credit default swap index classes.

Classification Letter.

ESMA Practical Guidance on its Recognition of Third Country CCPS

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European Securities and Markets Authority (“ESMA”) has published practical guidance on the recognition by it of third country central counterparties (CCPs) under EMIR (ESMA/2016/365). The guidance is dated March 17, 2016.

The guidance covers the following phases in the application process:

  • Communications with ESMA before submitting an application for recognition.
  • Timeframe for submission of an application.
  • Submission of an application, including format, number of copies and language.
  • ESMA’s acknowledgement of the receipt of an application.
  • Information on the calculation of deadlines set by ESMA.
  • Assessment of completeness, requests for additional information and notification of completeness.
  • ESMA’s examination of the application.
  • ESMA’s decision on the recognition application.
  • Publication on ESMA’s website.