Hot on the heels of ESMA’s 31 January 2019 ‘blind eye’ statement, on 5 February 2019, the EU Council issued a press release confirming it had reached agreement with the EU Parliament on certain aspects of the EMIR REFIT programme.
Broadly, the changes are that:
- A new category of “small financial counterparty” will be created. Small financial counterparties will not be required to clear derivatives transactions via a CCP.
- Smaller non-financial counterparties will also benefit from reduced clearing obligations.
- Pension schemes will receive an additional two-year exemption from the requirement to clear (extendible by two further one-year periods).
- The ‘backloading’ requirement will no longer apply. “Backloading” is the requirement to report trades which were outstanding after 16 August 2012 (the date on which EMIR itself came into force) but which terminated before 12 Feb 2014 (the date on which the EMIR reporting requirement came into force) to a trade repository by 12 February 2019.
- Firms will no longer be required to report intragroup transactions involving non-financial counterparties.
- Clearing brokers will be required to provide services on “fair, reasonable, non-discriminatory and transparent commercial terms” (“FRAND”).
It is hoped that the final text will be adopted by the Council and the Parliament at first reading.
This will be welcome news to “category 3” firms – financial counterparties that are below EUR 8 billion in aggregate month-end average notionals, who were due to start clearing certain interest rate and credit derivatives transaction on 21 June 2019. It also seems to be a sensible development for firms which were subject to the looming “backloading” obligation – a requirement which the Commission itself considered ‘virtually impossible to fulfil’ and of little use.