19th May 2017

EMIR today, gone tomorrow?

Written by Sam Mannion, Policy Advisor, Capital Markets

We are rapidly approaching eight years since the landmark G20 meeting in Pittsburgh, the world’s leaders tasked with firefighting the global financial crisis.

It was here that the central clearing of most types of OTC derivatives was first mandated, with the hope that this would increase transparency and standardisation across markets and reduce systemic risk.  It was to be accompanied by mandatory trade reporting.

Despite the unanimity on what needed to be done in 2009, the European Union’s efforts since to implement this new regime, EMIR, have been criticised by some market participants.

The Commission announced in 2015 that it would be conducting an early review of how EMIR was operating, and the BBA has been a regular contributor to this process.

Although the key issue of CCP location policy has been effectively separated out into a separate review, to be published by July, we were satisfied to see these first statements made on the remainder of the regulation.

The Commission has accepted the case made by the BBA and others that EMIR needs to be more proportionate in its application. This includes a proposal to update the clearing rules to only incorporate non-financial counterparties (NFCs) if their month-end positions aggregated across three months exceed the threshold, which will ensure only those NFCs with the ability to pay will be captured.

There are also welcome improvements to the regulatory reporting framework. Both “frontloading” and “backloading” – reporting contracts before the regulation took effect – will be taken out of the updated EMIR, and Pension Scheme Arrangements will be granted an extra three years (extendable twice by the Commission) to develop technical standards that will allow them to meet the clearing obligation, benefiting  buy-side firms.

We strongly support the stated intention of the Commission to reduce the compliance costs on market participants from EMIR. We have repeatedly advocated in the past that reporting requirements should be lightened, in a move which would benefit counterparties, and this is an argument that has been accepted.

We will analyse the specific technical amendments in greater detail in the coming weeks to assess how this may ensure financial stability is improved without adversely affecting the ability of counterparties to do business.

Ultimately this review will have significant implications for UK and European business, and we look forward to working with the Commission to support economic growth.

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