On Thursday 4 May, the European Commission presented a legislative proposal to modify the European Market Infrastructure Regulation (EMIR), which governs transactions in derivative financial products in Europe.
Valdis Dombrovskis, the Commissioner for Financial Services, said that the implementation of the EMIR regulation has been a success and that the proposal presented on Thursday would help it to achieve its objective of reducing systemic risks on the over-the-counter derivatives market, whilst keeping the costs to the real economy at a minimum.
According to the Commission, the changes proposed may allow market participants to save up to €2.6 billion in operating costs and up to €6.9 billion in one-off costs.
As we anticipated (see EUROPE 11780), the legislative revision will relax the obligations on non-financial businesses by providing for only the financial entity acting as counterparty in a transaction on the trade in over-the-counter derivatives to be required to notify this transaction to a central register. The proposal also provides an exemption for the reporting obligation in the event of intra-group transactions in derivatives if one counterparty is not a financial entity.
The scope of application of the clearing obligation upon financial counterparties has also been revised to include other market players and exempt small financial counterparties.
Furthermore, the legislative proposal brings in an extra period of three years to decide upon suitable clearing solutions for pension funds. If no solution is reached, this extra time may be extended once for a period of two years, a Commission expert told us.
The proposed reforms have been welcomed by seven organisations representing more than 8,000 businesses across Europe, including Coalition for Derivatives End-Users and EuropeanIssuers. “We have long called for the Commission to uphold the commercial hedging exemption [for non-financial businesses] and to tackle the disproportionate burdens for Europe's businesses from EMIR's current dual-sided reporting regime”, they stated in a joint press release.
Towards a legislative initiative on third-country CCPs by summer
In a press release published on the same day, the European institution announced its intention to present new legislative proposals in June on central counterparties located outside the EU clearing considerable volumes of derivative instruments in EU currencies which play a key systemic role for the financial markets in the EU.
When asked about the matter of the location within the European Union of the central counterparties (CCPs) with reference to Brexit, Dombrovskis replied by saying that an impact assessment was underway to evaluate the various options: the system of equivalence, the extra-territorial application of supervision or relocation into the EU27. (Original version in French by Marion Fontana)