The European Securities and Markets Authority (ESMA) has published today a statement addressing EMIR Refit implementation. The public statement addresses issues around the clearing and trading obligations for small financial counterparties and the backloading requirement for reporting entities, ahead of upcoming deadlines, which would represent challenges for the above mention entities in the context of the ongoing EMIR Refit negotiations.
Clearing and trading obligations for small financial counterparties
ESMA is aware of challenges that certain small financial counterparties would face to prepare for the 21 June 2019 deadline to start CCP clearing and trading on trading venues some of their OTC derivative contracts.
Given that the EMIR Refit negotiations have not been finalised, it is yet not known when the resulting text is expected to start applying, potentially after the phase-in for Category 3 counterparties expires. Therefore, there could be a timing gap during which small financial counterparties, whose derivative positions are below the clearing thresholds, would need to have clearing arrangements in place and start clearing their derivative contracts, before they are once again no longer required to do so once Refit comes into force.
ESMA, in its statement, indicates that it expects National Competent Authorities (NCAs) not to prioritise their supervisory actions towards financial counterparties whose positions are expected to be below the clearing thresholds when Refit enters into force, and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner.
Backloading requirement for reporting entities
ESMA is also aware of challenges that reporting counterparties would face regarding their compliance with the backloading requirement by 12 February 2019. To meet regulatory needs and to reduce the substantial and costly adjustments that reporting entities need to make to comply with the backloading requirement, the Refit proposals remove the backloading requirement from Article 9 of EMIR.
As the EMIR Refit negotiations have not been finalised and the deadline for the completion of backloading was already extended from 12 February 2017 to 12 February 2019, ESMA is addressing the backloading requirement with respect to the reporting obligation.
ESMA indicates in its statement that it expects NCAs to 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.