EMIR REFIT made some significant changes to several parts of EMIR last June, including changes to the calculation of the EMIR clearing threshold and the availability of an exemption from reporting of trades between non financial internal entities (see here).

This coming 18 June 2020, the next part of REFIT that applies to Non-Financial Counterparties (NFC) takes effect – that of “compulsory delegation” of reporting. Under this rules, where an “NFC-” entity enters into a transaction with a Financial Counterparty (FC), the FC takes full responsibility for reporting both sides of the transaction to a Trade Repository. This enforced delegation not only requires the FC to report on the NFC-s behalf, but also gives full responsibility to the FC, in contrast to the existing situation under EMIR where delegation of operations does not lead to delegation of responsibility.

NFC-‘s have two options with respect to this rule change:

1. Go ahead with delegation – In order for the delegation to be effective, the NFC- must pass any required data that the FC does not have to the FC. Examples of such elements include the “hedge/spec” flag for each trade, as well as other data from the perspective of the counterparty.
2. Opt out of delegation – some entities, particularly those actively trading derivatives in energy or commodities, may prefer to continue to report, as it is simpler than providing the data to a subset of counterparties.

Those who go ahead with option 1 will need to put a mechanism in place to provide the data to the counterparty. FC’s will also need the appropriate mechanism in place.

Last week, ISDA and other trade associations wrote this letter to ESMA, asking that ESMA direct National Competent Authorities to show flexibility in terms of FCs and non opted out NFC-‘s meeting this deadline. It highlights the issues caused by the Corona virus, which is likely to have had an impact on plans to meet the rules on the part of both FC’s and NFC’s affected. It also points out that given that reporting is already taking place, a failure to move to the new method on time does not necessarily lead to a reduction in transparency, since the old method will still be in place.