EMIR REFIT: cleared to land


In a press release, the Council of the European Union (“Council”) announced recently that a preliminary agreement was reached relating to the proposed regulation that would amend the European Market Infrastructure Regulation (“EMIR”). Parliament and Council are called upon to adopt the proposal at first reading. However, the deal will first be submitted to the EU ambassadors for endorsement.

An assessment of the ‘real-time effects’ of EMIR back in 2015, followed by a subsequent report in 2016, led the European Commission to conclude that EMIR proved to be overly burdensome and complex for many non-financial counterparties (“NFC”) and smaller financial counterparties (“FC”).

This conclusion ultimately paved the way for a European Commission proposal, launched back in 2017, to amend and simplify EMIR (“EMIR Refit”) in order to address the disproportionate compliance costs and transparency issues for the above-mentioned counterparties.

The proposal was in the meanwhile also backed by the European Securities and Markets Authority (“ESMA”), who further supported the need for simplification measures. As recently as 31 January 2019, ESMA published a statement recognising the challenges that some small FCs face when it comes to clearing and trading obligations, and to backloading requirements. It even indicated that, although it had no legislative authority to dis-apply the applicable EMIR rules, leeway in its day-to-day supervision and enforcement of the relevant rules was not off the table.

The recently announced agreement on EMIR Refit is therefore not at all unwelcome. It will tackle a number of issues, notably:

  • The introduction of the notion of “small financial counterparty” (“SFC”). SFCs would no longer be subject to the clearing obligation. This exemption from the mandatory clearing obligation does not, however, relieve them from being subject to  the risk mitigation obligations. Similarly, smaller NFCs will be able to enjoy reduced clearing obligations.
  • Tied to the clearing obligations, pension scheme arrangements will see an extension to their temporary exemption from the clearing obligation. The deal provides for a two-year extension, extendable twice by an additional year.
  • The requirement for clearing brokers to provide clearing services on “FRAND” terms, i.e. fair, reasonable, non-discriminatory and transparent commercial terms – a measure that aims to incentivise and facilitate access to clearing.
  • The removal of the obligation to report historical data, the so-called “backloading”, of trades that were outstanding after 16 August 2012 yet terminated before 12 February 2014.
  • Intragroup transactions that involve an NFC will no longer have to be reported.

A swift push of the proposed changes through the legislative process would be especially welcomed by those FCs (the Category counterparties) that are scheduled to start clearing certain OTC derivative contracts (interest rate swaps and credit default swaps) by 21 June 2019.

Following the Council’s call to adopt the proposed regulation at first reading, we have entered into the final stages of the EMIR-revision process and should be wheels down before too long.