Technical advice on third country regulatory equivalence under EMIR

ESMA has published its second set of advice to the European Commission on the equivalence of the regulatory regimes for OTC derivatives clearing, central counterparties and trade repositories of non-EU countries with EMIR.

Following a first set of advice published in September 2013, ESMA has now published its equivalence assessments of the regulatory regimes of Canada, India and South Korea, along with supplements to its equivalence assessments for Australia, Hong Kong, Singapore and Switzerland.

The third-country rules were compared with EMIR’s requirements for Central Counterparties (CCPs), Trade Repositories (TRs) and/or central clearing, reporting and non-financial counterparties as well as risk mitigation techniques for uncleared trades.

Besides Hong Kong and Switzerland, conditional equivalence is proposed in respect of the other third-country regimes. ESMA is not in a position to perform a conclusive analysis in respect of certain aspects of the Hong Kong and Swiss regimes as those countries are still in the process of finalising their regulatory regimes for the clearing obligation, non-financial counterparties and risk mitigation techniques for uncleared trades and trade repositories.

The European Commission is expected to use ESMA’s technical advice to prepare possible equivalence decisions. Where it adopts such a decision, certain provisions of EMIR may be disapplied in favour of equivalent third-country rules and, depending on the specific area determined to be equivalent, ESMA may:

• Recognise within the EU a CCP which is authorised outside the EU
• Recognise within the EU a TR which is authorised outside the EU

European Commission not to support delay in reporting date for Exchange Traded Derivatives

In August 2013 ESMA proposed, to the European Commission, to delay the reporting date for Exchange Traded Derivatives (ETDs) for one year to January 2015.  Such a delay would give ESMA time to develop guidelines for the reporting of ETDs.  However, the European Commission recently signalled that it does not intend to support such a delay.  While far from ideal, if the delay is not endorsed by the European Commission, ESMA intends to provide some Q&As on ETD reporting before the start of the reporting obligation.

Portfolio Reconciliation EMIR Operational Guidance Note

ISDA has published an operational guidance note which provides operational guidance for portfolio reconciliation and dispute resolution obligations imposed by EMIR which came into effect on 15 September. It also includes guidance on a minimum set of fields for portfolio reconciliation purposes. The guidance note is structured in a Q&A format and provides responses to, inter alia, the following questions:

• Who is subject to portfolio resolution and dispute resolution obligations and how frequently are they required to reconcile
• How does one agree to terms of reconciliation
• Whether a firm should adhere as ‘Sender’ or ‘Receiver’
• Whether a third party vendor should be used to reconcile trades
• What is the difference between a discrepancy and a dispute

Finally, the guidelines contain a matrix detailing the comparisons and differences between EMIR and the CFTC regulations as they pertain to portfolio reconciliation.

ESMA Q&A – Implementation of EMIR

ESMA updated its Q&A on the implementation of EMIR on 22 October 2013.  The answer to TR question 10(b) has been modified.  TR question 10(b) questions the code to be used to identify counterparties (LEIs, interim LEIs or BICs).  The answer links to a list of endorsed pre-LOUs (local operating units).

ESMA Guidelines and Recommendations regarding written agreements between members of central counterparty colleges

ESMA has published guidelines recommending the form of written agreement that the National Competent Authority (NCA) of a Central Counterparty (CCP) should propose as part of its establishment of a college under Article 18 of EMIR.  The establishment of such a college will facilitate the exercise of the tasks referred to in Articles 15, 17, 49, 51 and 54 of EMIR.  CCP college members should agree to the terms of such written agreement ahead of their participation in such colleges.

The template written agreement contained in the guidelines contains provisions relating to, inter alia, the following:

• Formation of the college
• Working language of the college
• Applications by the college to the NCA
• Meetings of the college
• On-going risk review
• Organisation and coordination of activities between college members
• Information requests
• Emergency situation (as referenced in Article 24 of EMIR)
• Withdrawal of authorisation and dispute resolution

NCAs must make every effort to comply with the guidelines and must notify ESMA whether they comply or intend to comply, giving reasons for non-compliance, by 3 December 2013.  In the absence of a response by this deadline, NCA’s will be considered non-compliant. 

Delegated Regulations – exempted entities & trade repository fees

The delegated regulations relating to exempted entities and fees charged by ESMA to trade repositories have been published in the Official Journal.  The delegated regulation regarding exempted entities, exempts central banks and public bodies charged with or intervening in the management of the public debt in  Japan and the USA from the requirements of EMIR.

Contributed by Caitríona McCrohan