CySEC wishes to inform Regulated Entities of the recent amendments made regarding EMIR.
The following are the main changes:
- Definition of Financial Counterparty (‘FC’)
The EMIR Refit expands the definition of an FC to include the following entities perceived to pose important systemic risk to the financial system:
- Every AIF established in the EU, or managed by an AIFM authorised or registered in the European Union (‘EU’) and where relevant its AIFM established in the EU. This amendment to the definition excludes AIFs set up exclusively for the purposes of serving one or more employee share purchase plans or AIFs that are ‘securitisation special purpose entities’ as referred to in point (g) of Article 2(3) of Directive 2011/61/EU.
- Central securities depositaries authorised in accordance with Regulation (EU) No 909/2014.
- Clearing requirement
- EMIR Refit establishes a new regime for determining when FCs and non-financial counterparties (‘NFCs’) are subject to the clearing requirement, depending on whether or not their positions exceed the clearing thresholds. More specifically:
- For FCs, it introduces the regime of ‘small FCs’, which should be exempted from the clearing obligation if they choose to calculate their positions every 12 months against the clearing thresholds and such positions do not exceed the clearing thresholds. However, such FCs shall remain subject to the requirement to exchange collateral. It is noted that for UCITS and AIFs, the positions referred to above shall be calculated at the level of the fund.
- For NFCs, the scope of the clearing obligation is narrowed if they choose to calculate their positions every 12 months against the clearing thresholds. Those NFCs are subject to the clearing obligation only with regard to the classes of OTC derivatives that exceed the clearing threshold. However, NFCs remain subject to the requirement to exchange collateral where any of the clearing thresholds is exceeded. Also, NFCs that choose not to calculate their positions against the clearing thresholds, become subject to the clearing obligation for all classes of OTC derivatives.
- The requirement to clear certain OTC derivative contracts concluded before the clearing obligation takes effect has been removed.
- Reporting requirement
- The requirement to report historical contracts, which were entered into before 12 February 2014 and were not outstanding on that date, has been removed.
- Transactions between counterparties within a group, where at least one of the counterparties is an NFC, are under certain conditions exempted from the reporting obligation-regardless of the place of establishment of the NFC.
- As of 18 June 2020:
- The FC will be solely responsible and legally liable for reporting on behalf of both itself and NFCs that are not subject to the clearing obligation with regard to OTC derivative contracts entered into by those counterparties, as well as for ensuring the correctness of the details reported.
- In relation to UCITSs and AIFs, the management company of a UCITS and the AIFM, respectively, will be responsible and legally liable for reporting on behalf of that UCITS or AIF with regard to OTC derivative contracts, to which the UCITS or AIF is a counterparty, as well as for ensuring the correctness of the details reported.
- Risk mitigation
EMIR Refit introduces an amendment requiring regulatory technical standards to be developed on risk management procedures relating to the exchange of collateral and specification of supervisory procedures to ensure initial and ongoing validation of these procedures.
Regulated Entities should review the implications of the amended provisions and take the necessary action in order to ensure compliance with EMIR. Regulated Entities are advised to:
- evaluate the impact of EMIR Refit on the Regulated Entity or the group to which it belongs;
- in case they are subject to the clearing obligation, decide whether:
- to calculate the OTC derivative positions on a periodic basis; or
- to clear OTC derivatives subject to the clearing obligation.
- Re-evaluate the status of counterparties and clients under EMIR Refit, in particular as to whether they are in compliance with the new rules and obligations;
- Consider changing agreements with corporate clients to incorporate EMIR Refit changes
Should you need more information or assistance regarding Best Execution requirements you may contact us on [email protected] or 25 508 201.