EMIR Refit - so what’s new?

EMIR Refit - so what’s new?

Quinn Perrott

Co-Founder at TRAction

Views 831

EMIR Refit - so what’s new?

27.01.2020 08:00 am

Last year, the European Commission published a series of amendments to the European Markets Infrastructure Regulation (“EMIR”).

Those amendments became, known as “EMIR Refit” or “EMIR 2.1”, introduced some new definitions and obligations to the market. The updates require Financial Counterparties (“FCs”) to report on behalf of itself and Non-Financial Counterparties (NFCs) that are not subject to the clearing obligation.

But what exactly is behind EMIR Refit and what are some of the specific changes?

New definitions and categories for Financial Counterparties

The Financial Counterparties (FC) definition now includes more entities which the European Securities and Markets Authority (ESMA) deems to pose a significant risk to the financial system.

This is the case with Alternative Investment Funds (“AIF”) and their managers. An AIF will be deemed an FC where it is managed by an Alternative Investment Fund Manager (“AIFM”) authorised or registered under the Alternative Investment Fund Managers Directive (AIFMD). This will also be the case when the AIF is established in the European Union (EU), regardless of the location or status of its manager.

Another key change is the introduction to the concept of Small Financial Counterparties (SFCs) which are exempt from the clearing obligation but remain subject to risk mitigation obligations, including margin requirements.

What are the new obligations or requirements?

For OTC derivative contracts, FCs will be responsible and legally liable for reporting on behalf of itself and NFCs that are not subject to the clearing obligation.

FCs will also be responsible for making sure that the details reported are correct. However, there is an obligation for the NFCs to provide the details relating to the OTC derivatives contracts that the FC is not reasonably expected to know. The NFC is responsible for the accuracy of those details.

FCs will need to set themselves up operationally to report for their NFCs, however this requirement does not come into effect until 18 June 2020.

EMIR Refit also establishes a new regime for determining when FCs and NFCs are subject to the clearing requirement, depending on whether or not their positions exceed the clearing threshold.  FCs are divided into those that exceed the specified thresholds (FC+s); and those that do not exceed the specified thresholds (FC-s).

FCs that are in the second category (FC-s) are not subject to the clearing obligation (nor are NFCs). An entity will only be a FC-s if it is below the threshold for each asset class. The current thresholds are EUR 1 billion for credit and equity OTC credit derivatives contracts (gross notional and value), and EUR 3 billion for OTC interest rate, FX and commodity derivative contracts;

What does all this mean for market participants and how should they respond?

Financial Counterparties will be responsible for reporting on behalf of any Non-Financial Counterparty, not subject to the clearing obligation (NFC-).  This means they will need to first identify which of their   trading counterparties are an NFC- (below the clearing threshold). For those that are below the threshold, they will need to request some extra details in order to fulfil trade reporting obligations.

As a case in point, ABC Broking has a diverse client base trading FX derivatives for speculative purposes. 90% of those clients are individuals but 10% are small companies. From 18 June 2020, ABC Broking will have the responsibility and liability to submit transaction reports for both itself and also its clients that are small companies.

There are two key data fields which will need to be populated in the trade report when reporting on behalf of an NFC. These are: ‘Corporate sector of the reporting counterparty’. Market participants will need to be able to collect and send to their regulatory reporting vendor which category, or categories, their Non-Financial Counterparty corresponds to.

All this means that firms will need a regulatory reporting vendor to create an extra trade report for their NFC-. Using a delegated reporting provider can significantly reduce resources allocated to trade reporting – enabling trading firms to focus on their core activities. With so many other issues for financial institutions to consider in 2020, not having to worry about another trade report may be a good way to kick-start the year.

Latest blogs

n/a n/a

How COVID-19 Is Ushering In a New Era of Cashless Technology

  Image source: https://www.pexels.com/photo/person-shopping-online-3944405/   Cashless technology isn't a completely fresh concept. People have been using credit cards for decades, and the market for fintech services has been Read more »

Jean Shin tyntec

Using WhatsApp for 2FA is the Future of Banking

From user authentication and password resets to transaction verification, two-factor authentication (2FA) offers basic but useful protection for consumers. The 2FA process typically sends an SMS sent to the customer with a one-time password (OTP). Read more »

Amir Ghodrati App Annie

The Role of Fintech Apps in Navigating This Period of Financial Insecurity

Economic instability has been ricocheting throughout the stock market in the wake of the global coronavirus pandemic. Its effects have been felt across all industries, with winners and losers’ across different sectors. So, how has fintech Read more »

n/a n/a

How to Choose a VPN for Digital Privacy & Security

In a world where almost everything is connected, and where hackers and other malicious people are roaming the internet, it is always advisable that you take every precaution that you can to enhance your data security and privacy protections. Using a Read more »

Ben Slater Instaclustr

The Case for Adopting Open Source – Own Rather Than Rent the Foundations of Your Business

For some time open source was seen as something that only the biggest companies could use and play with. But with the modern, increasingly fast business environment, the use cases for open source are in everything and the technology is increasingly Read more »

Related Blogs

Granville Turner Turner Little

IT’S A MATTER OF TRUST

As financial portfolios become more complex, financial trusts are becoming increasingly common, because they can be shaped to serve a variety of purposes. Trusts are routinely used as tools for gifting, asset management, inheritance tax planning and Read more »

Shailendra Malik DBS Bank

Let Your Agile Squads Breathe!!!

Most people are other people,Their thoughts are someone else’s opinions,Their lives a mimicry,Their passions a quotation!!!                         -   Oscar Wilde Nothing can sum up social life as beautifully as Oscar while did more than a century Read more »

Alex Chen FIME

Transit Ticketing in APAC – key takeaways from Singapore

Last month, we visited Singapore for Global Mass Transit’s (GMT) annual Transit Ticketing & Fare Collection APAC conference. Rapidly becoming the event in the APAC transit industry’s calendar, this year’s show didn’t disappoint. Read more »

Chris Towner JCRA

Comment - Sterling - what next?

Volatility in the FX markets often hinges on uncertainty. With all the noise surrounding Brexit, which reached a crescendo over the weekend, it is therefore unsurprising that sterling has been subject to significant movements. In the last 10 trading Read more »

Ed Molyneux FreeAgent

Northern Rock Ten Years On: Financial Crisis Changed How Britain Works Forever

The collapse of Northern Rock ten years ago, and the ensuing financial crisis, has profoundly changed how people in the UK work to this day. With unemployment across the UK sharply rising in 2008, that year gave birth to the UK’s freelance economy. Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel