On 14 November 2012, the European Commission published an initial FAQ document on the EMIR Regulation which came into force on 16 August. The FAQs recognise that there is still a lack of clarity surrounding the timing of implementation of EMIR, the scope of requirements arising under EMIR and the position of third country central counterparties (“CCPs”) and trade repositories (“TRs”).

The initial FAQs will be updated as required. The Commission confirmed that any questions regarding the regulatory and implementing technical standards will only be addressed following adoption of those standards by the Commission.

Timing

In terms of the timing of implementation of the requirements arising as a result of EMIR, the FAQs have confirmed that:

• EMIR’s provisions are directly applicable and binding on all EU Member States from 16 August 2012.
• If the implementing technical standards are endorsed by the Commission by 30 December 2012 without amendment then the final implementing technical standards will be published in the Official Journal by the end of February 2013, and will become effective 20 days thereafter. If the implementing technical standards are subject to amendment by the Commission then the Official Journal publication date could be the end of June 2013.
• The clearing obligation will come into effect once a CCP has been authorised under EMIR to clear a certain class of OTC derivatives. ESMA has specified the effective date of this obligation, including any phase-in period (six months prior to which ESMA must have determined the classes of OTC derivatives that the CCP is able to clear).
• CCPs need to apply for authorisation or recognition under EMIR within six months after the entry into force of the relevant technical standards.
• CCPs need to comply with the requirements defined under Title IV and V of EMIR as of the date that they are authorised under EMIR.
• The obligations related to risk-mitigation techniques for OTC derivative contracts not cleared by a CCP enter into force from 16 August 2012.
• The reporting obligations are expected to take effect from 1 July 2013 at the earliest.
• Derivative contracts, the subject of EMIR, which are terminated before the entry into force of the reporting obligation, but which were outstanding (or entered into) on or after 16 August 2012, need to be reported under EMIR.
• TRs need to be registered under EMIR within six months of the date of entry into force of the relevant technical standards.

Scope

The FAQ responses to queries received from industry participants have confirmed that:

1. Energy spot transactions are outside of the scope of EMIR.
2. Foreign-exchange derivatives are within the scope of EMIR.
3. Even if a counterparty (or a CCP) subject to the reporting obligation delegates the reporting of the details of the derivative contract to a third party, it remains legally responsible for the reporting obligation.
4. Reporting may be delegated to a TR or CCP, including non-EU based TRs or CCPs.
5. Counterparties and/or CCPs and/or other entities reporting on their behalf need to agree on the report’s contents before submitting it to TRs to ensure that the details of their derivative contracts are reported without duplication.
6. Details of a derivative contract are not the same as the contract terms. Details should include all elements related to the derivative trade that are relevant for regulatory purposes under EMIR with particular emphasis on measurement and mitigation of systemic risk. The details to be reported will be specified in the regulatory technical standards.
7. Counterparties can start applying for the intragroup exemptions to the clearing obligation and margin requirements when the technical standards relevant to the intragroup exemptions enter into force.
8. Intragroup transactions are not excluded from the calculation of the clearing threshold.
9. Special purpose vehicles (SPVs) are not definitively categorised as “non-financial counterparties”. As there is no common definition of SPVs, if SPVs do not fall under the definition of financial counterparty they are, by default, a non-financial counterparty.
10. Pool structures (i.e. structures which have no legal personality of their own) are indirectly subject to the clearing and risk mitigation obligations because the investment funds whose assets are pooled in a portfolio are subject to EMIR obligations. The legal counterparty to the OTC derivative contract will need to fulfil the relevant EMIR provisions arising from the trade with the pool structure.
11. EMIR does not permit CCPs to offer omnibus segregation only

Third Country CCPs/TRs

From the perspective of third country CCPs and TRs, the FAQs have confirmed that:

1. A third country CCP has to apply for recognition under EMIR within six months after the entry into force of the relevant technical standards.
2. A third country’s CCPs providing services outside of the EU need to be recognised under EMIR to provide services to EU branches located in that third country.

For further information, please contact one of the key contacts listed above or your usual contact in our Asset Management and Investment Funds Team.