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CRDIV, Mifid

Commission proposes a three year extension to CRD IV commodities carve out

The European Commission last week proposed extending the carve out for much of CRD IV and CRR  by three years until the end of 2020. The proposed amendment can be found here.

CRD IV and CRR apply to all “investment firms”, which includes any entity that cannot rely on a MiFID exemption. A special category of Investment Firm exists known as the “Commodity Dealer”. In basic terms, if the firm’s main business is dealing in commodity derivatives this status may be used. Commodity Dealers had been exempted from the large exposures and own funds requirements of CRR until the end of 2017. This could now be extended to the end of 2020.

MiFID II is due to put many more energy and commodity market participants into the CRD IV and CRR regimes, due to the loss of exemption.  The funding requirements of these rules had been one of the key fears of those losing the exemption due to the cost. One of the primary issues of concern is that the funding requirements are not appropriate for commodity dealers. The exemption was therefore put in place to allow time for the rules to be tailored for the industry.

The probable delay in MiFID II application, combined with the lack of tailored rules so far, has led to this extension. If it goes ahead, it does address a key concern of those who do not agree with the loss of exemption from MiFID, and therefore CRD IV and CRR (although there are also other concerns).

This extension would appear to give some weight to those in favour of a wider application of financial regulation to the commodity and energy trading sector. If the CRD IV and CRR regimes were appropriately tailored before they take effect, it is harder to argue that financial regulation, in the form of MiFID II, CRD IV, CRR and Financial Counterparty status under EMIR should not come into force.

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.

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