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EMIR Review: REFIT Expected in 2017

29 November 2016

EMIR Review Report:

Four years after the European Regulation on OTC derivatives, central counterparties and trade repositories (also known as EMIR) was implemented, the European Commission (EC) has published a review report.

The European Commission’s review report, published on 23rd November 2016, provides a summary of those areas where responses and specific input from EU bodies and authorities during consultation have shown that additional action could be required to ensure that the EMIR’s objectives are met in a more proportionate, efficient and effective manner.

Furthermore, the report lays out issues that stakeholders have identified, relating to the implementation of those requirements which already apply, in addition to issues encountered in preparing for the clearing and margin requirements.

Background to EMIR

The European Regulation on OTC derivatives, central counterparties and trade repositories (also known as EMIR) was published in the Official Journal of the European Union on 27 July 2012, and was implemented across Europe on 16 August 2012.

At the time, EMIR was a response to the commitment made by G20 leaders in September 2009 who stated that:

"All standardised OTC derivatives contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at latest. OTC derivatives contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements".

The European Commission now inform that “Many derivatives regulators across the globe have also now transposed this commitment into their legislative frameworks.”

The purpose of EMIR is to promote the transparency and standardisation of derivatives markets in addition to reducing systemic risk via the application of the regulation’s core requirements.

EMIR’s core requirements include:

• Central clearing of standardised OTC derivative contracts;
• Margin requirements for OTC derivative contracts that are not centrally cleared;
• Operational risk mitigation requirements for OTC derivative contracts that are not centrally cleared
• Reporting of all derivative contracts;
• Requirements for Central Counterparties (CCPs); and
• Requirements for Trade Repositories.

EC Review Report: EMIR Conclusion

Whilst the review informs that “There does not seem to be a need for fundamental changes to be made to the nature of the core requirements of EMIR… Nevertheless, having analysed the input received as part of the EMIR Review process and the Call for Evidence, action should be considered to address the issues identified in this report.”

As such the European Commission propose in their report that a legislative review of EMIR be undertaken in 2017 in the framework of REFIT that will be accompanied by an impact assessment that will consider the various issues at stake in more detail.

Additionally, the EC would expect the relevant technical standards associated with EMIR to be assessed at the same time.

Future Regulation on Recovery & Resolution:

The EC also informs that it will propose legislation on Central Counterparty (CCP) recovery and resolution that deals with elements that are not presently covered under EMIR. For example:

• Recovery planning
• Resolution planning; and
• Removing impediments to resolvability for CCPs so that their financial distress can be dealt with effectively by authorities without unduly creating financial stability or placing public finds at risk.

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