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EMIR

ESMA issues statement around EMIR REFIT and upcoming deadlines

ESMA has today issued this statement, around the issues raised by the EMIR “REFIT” programme not yet being published in the Official Journal of the European Union, and therefore note starting. In particular, the statement addresses the issue of the looming final backloading deadline on 12th February 2019, and also the potential start of the clearing obligation and trading obligation for “Category 3” entities from 21st June 2019.

The as yet unapproved REFIT programme (see here) proposes several adjustments to EMIR, many of which will make life easier for Non Financial Counterparties, which include the majority of those in energy and commodities. One of the changes is to remove completely the final backloading deadline found under EMIR. This requires that any transactions that were open or executed after 16th August 2012 (the date EMIR came into effect), but expired by 12th February 2014 (the start of reporting) be backloaded. The original deadline was 12th February 2017, 3 years after the start of reporting. This was extended by 2 years to 12th February 2019, as a level 2 measure, with the expectation that the requirement would be removed completed by REFIT. However, it was not anticipated that by this stage, REFIT would still not be passed. Since neither ESMA nor the Commission can make the Level 1 changes necessary to remove the requirement, the statement recommends that regulators  “apply their risk-based supervisory powers in their day-to-day enforcement of EMIR in a proportionate manner. This may include not prioritising counterparties’ reporting of backloaded transactions in their day-to-day
supervision and enforcement of EMIR.”

Backloading at this stage would cause a significant effort for those covered, since the required fields may not have been captured before the start of reporting, and also the need to coordinate Unique Transaction Identifiers. Additionally, since the data is 5 years old, it is of limited value to regulators. This prompted  the move to no longer require it to be submitted.

In parallel, ESMA have addressed the issue of the clearing obligation and trading obligation  for smaller financial counterparties, known as “category 3” counterparties . It has been proposed that such counterparties, with a month end outstanding gross notional value of under 8 billion Euros,  not be in scope for the obligation, due to the higher overhead an capital cost compared to the lower interconnectedness shown by such entities. Again, since REFIT has not yet come into force, the requirement is in danger of applying for a temporary period to the affected entities. here too, ESMA has recommended that regulators deprioritise enforcing the requirement.

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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