April 1, 2013

BaFIN briefing: EMIR II under development

6355756-fake-stampContacts at BaFIN I met last week described negotiations being conducted within the European Parliament, which frankly mean far more work for regulatory compliance, than expected. EMIR II, i.e. a revised and extended version of the European Market Infrastructure Regulation, is already being formulated between the EU Commission under Patrick Pearson, and European Council and the European Parliament, with expert input from ESMA. At my meeting they said that Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA) met with other regulators in The Hague after he delivered a speech as part of an EMIR conference. Among those participating in the discussions were Sharon Bowles, chairwoman of the influential European Parliament Committee on Economic and Monetary Affairs (ECON), Werner Langen, rapporteur of the original EMIR as well as Michel Barnier, European Commissioner for Internal Markets and Services. The discussion is said to have been initiated as frustration is growing about more and more delays as well as dilutions of the originally intended regulations. During these discussions a rough framework has been hammered out that should revise and extend a number of provisions currently being implemented across the globe. Ideas for EMIR II will include:

  • The exemption for non-financial counterparties will be dropped, they will not be handled differently from financial counterparties anymore – this would mean clearing would become mandatory for corporates
  • The 3 year exemption for pension funds will be terminated early, and instead they will also be included in mandatory clearing
  • Clearing of FX swaps and forwards will become mandatory – clearing houses will be coerced to offer this, along with a JV involving CLS Bank
  • A closer alignment with Dodd Frank is envisaged to ensure clear guidance on extraterritoriality and to guarantee substituted compliance.
  • EMIR 2 will be expected to apply to any non-European party trading into the EU geography, therefore including most of Asia, the US and Middle East in EMIR 2 compliance.
  • Direct trade reporting of all derivatives trades to ESMA instead of trade repositories as well as outsourcing of the analysis of the data to an offshore centre.

As yet it is unclear if these considerations will find their way into the trilogue process already before finalisation of the implementation of EMIR. It is expected that a first official statement will be issued within a few weeks.

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