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EMIR Update

ESMA Signs Memorandum of Understanding with Hong Kong SFC on CCPs

On 15 December 2014, ESMA and the Hong Kong Securities and Futures Commission entered into a Memorandum of Understanding (MoU) relating to Hong Kong-established CCPs which have applied to ESMA for recognition under EMIR.

The MoU reflects ESMA’s determination that the legal and supervisory arrangements of Hong Kong are equivalent to the requirements of EMIR and that the CCPs are subject to an effective supervision and enforcement regime. It is a statement of intent to consult, co-operate and exchange information in relation to ESMA’s monitoring of the activities of SFC authorised CCPs.

The MoU outlines co-operation arrangements between ESMA and the SFC. Specifically it covers:

  • Execution of requests for information
  • On-site inspections
  • Permissible uses of information
  • Confidentiality and onward sharing of information

The MoU is unlimited in its term and enables either party to withdraw from it on 30 days prior written notice.

Update on Clearing Obligation for Non-Deliverable Forwards

On 1 October 2014 ESMA published a consultation on the clearing obligation for non-deliverable foreign-exchange forwards (NDFs) of the type cleared by LCH.Clearnet Ltd (UK). ESMA has now published feedback to the consultation which concludes that the determination of the clearing obligation for NDFs will need to be considered further in the context of the global nature of the foreign-exchange market. The outcome is that ESMA is not currently proposing a clearing obligation for NDFs as it is of the view that additional time is required to appropriately address the concerns raised in the feedback received to the consultation.

ESMA’s Opinion on Interest Rate Swaps Clearing Obligation

On 29 January ESMA submitted a formal opinion to the European Commission on amended draft RTS for the clearing of interest rate swaps (IRS). By way of background, draft RTS on the clearing obligation for IRS were submitted to the Commission in October 2014. The Commission’s indication that it would endorse the RTS was coupled with modified RTS which proposed (amongst other items) a new provision on the treatment of non-EU intragroup transactions (IGTs) and amendments to the date on which frontloading obligations would apply.  ESMA’s formal opinion is by way of response to the proposals outlined in the modified RTS.


ESMA has indicated its strong support of the objectives introduced by the Commission however it raised concerns in relation to the appropriateness “from a legal perspective” of the proposal. For example (in the context of non-EU IGTs) the Commission’s proposal to introduce a period of three years during which any third country will be deemed “equivalent” is hampered by the fact that the Commission must first adopt an “equivalency” implementing act (i.e. a declaration that the legal, supervisory and enforcement arrangements of any third country are EMIR-equivalent). In the absence of such a determination, no exemption from IGTs is available. ESMA also raised concerns about its capacity to regulate third country equivalence as it is a matter within the exclusive remit of the Commission.

Frontloading postponed

ESMA indicated its support for the proposal to further backdate the frontloading obligation for financial counterparties and has proposed that the clearing obligation shall take effect:

  • 6 months after entry into force of the RTS for counterparties that are clearing members of a CCP for at least one class of OTC derivatives referred to in the RTS;
  • 12 months after entry into force of the RTS for counterparties that
    • Are not clearing members
    • Belong to a group whose aggregate month-end average of outstanding gross notional amount of non-centrally cleared derivatives (including foreign exchange forwards, swaps and currency swaps) for a period of three months after the publication of the RTS in the Official Journal (excluding the month of publication) is above €8 billion and which are either financial counterparties or AIFs which are non-financial counterparties (NFCs)

UCITS and AIFs fall into this category (at “fund level”).

  • 18 months after entry into force of the RTS for counterparties that don’t meet the above requirements but which are either financial counterparties or AIFs which are NFCs;
  • 3 years after entry into force of the RTS for NFCs that don’t meet any of the above requirements

Where a contract is entered into between two counterparties included in different categories, the date from which the clearing obligation takes effect for that contract shall be the later of the two.