After a long wait, we have finally received an update on the latest European Market Infrastructure Regulation (EMIR, Regulation (EU) No 648/2012) review, the so-called “REFIT” (Regulatory Fitness Test). With changes affecting all areas of EMIR and hence many market participants, it is crucial that firms analyze the impact and act swiftly to stay compliant.
The European Commission's regulatory fitness and performance (REFIT) program aims to ensure that EU legislation fulfills the intended results with efficiency and simplicity. They are part of the EC’s “better regulation agenda”.1
The first drafts of the changes to EMIR were published in May 2017 with public consultations on the revisions following. After lengthy deliberations, and most likely some interruptions due to other foci (e.g. EMIR Review RTS, MiFID, and SFTR, to name a few), the EU council announced on May 14, 2019 their plans to have the revised text signed in the following calendar week. On May 28, the revised text was published in the Official Journal and subsequently, 20 days after its publication in the EU Journal, the changes entered into force on June 17. (For more information, please refer to the announcement and legal text2 and the publication in the Official Journal3)
The changes and amendments aim to simplify the compliance, address disproportionate compliance costs, increase transparency, and solve insufficient access to clearing for certain counterparties. Small counterparties, both financial and non-financial, will be impacted the most. We welcome this initiative and hope that those changes will result in better quality of EMIR TR Reporting, better access to clearing, lower costs, and other benefits. Figure 1 shows a brief history of the development in EMIR.
Simpler clearing rules
There are several changes to the clearing obligation under EMIR. For example, small financial counterparties (FCs) and small non-financial counterparties (NFCs) are exempt from the clearing obligation whilst being allowed to clear on a voluntary basis. FCs remain subject to the margining obligation though and are required to clear if they surpass the threshold in one of the asset classes. NFCs, both small and large, are only obliged to clear in those asset classes where they surpass the threshold, provided they calculate their position for the category every 12 months.
The removal of the “front loading” requirement (clearing of outstanding OTC contracts per entry into force of the clearing obligation) should make market participants’ lives a bit easier. In addition, the text extends by another two years (and is extendable twice by an additional year) the temporary exemption from the clearing obligation of pension scheme arrangements.