knowledge | 5 May 2020 |
EMIR Refit – New Reporting Requirements Coming Soon!
COVID-19 has caused many financial market participants to prioritise operational resilience and continuity over other initiatives and regulators have, in respect of certain regulatory initiatives, facilitated that approach. However, absent clear regulatory forbearance, it remains important to ensure timely compliance with applicable regulatory requirements.
The effective date for new EMIR1 reporting obligations for certain fund managers - 18 June 2020 - is fast approaching and, if in scope fund managers have not yet put in place the arrangements required to ensure compliance with those new obligations, they should do so now.
Under EMIR, counterparties to derivative contracts, including UCITS and alternative investment funds (“AIFs”) must report details of those contracts to a trade repository (the “EMIR Reporting Requirement”). As set out in our previous briefing (here), EMIR Refit2 amends EMIR in a number of respects, including regarding the EMIR Reporting Requirement as it applies to UCITS and AIFs (each a “Fund”). EMIR Refit shifts the responsibility for reporting the details of OTC derivatives contracts entered into by a Fund from that Fund to its UCITS management company or AIFM, as applicable (in respect of the Fund, the “Fund Manager”).
Importantly, Fund Managers only assume responsibility for reporting derivative contracts entered into by their Funds that constitute “OTC derivative contracts” as defined in EMIR and therefore with effect from 18 June 2020:
- a Fund will remain responsible and legally liable for reporting details of derivative contracts executed on its behalf on an EU regulated market3 or a third country market that is treated for EMIR purposes4 as equivalent to an EU regulated market; and
- that Fund’s Fund Manager will become responsible and legally liable for reporting details of all other derivative contracts executed on behalf of that Fund,
and, in each case, ensuring the correctness of the details reported.
Each Fund Manager will need to ensure that it has in place any measures necessary to enable it to comply with its new reporting obligations from 18 June 2020. This will require:
- an assessment of the categories of derivative contract transacted by each Fund under its management to identify those in respect of which:
- the Fund Manager will assume; and
- the Fund will retain,
responsibility for the EMIR Reporting Requirement; and
- the Fund has delegated the reporting function5 with respect to derivative contracts to its counterparty or a third party service provider; and
- the Fund Manager wishes that delegate to continue to undertake that function after it assumes responsibility for the EMIR Reporting Requirement in respect of the Fund’s OTC derivative contracts,
an assessment of the amendments required to be effected to existing delegated reporting arrangements to ensure that the delegate undertakes the reporting function in respect of the Fund or Fund Manager, as applicable, in respect of the relevant derivatives contracts.
- Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories.
- Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories.
- A regulated market within the meaning of Article 4(1)(21) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EC (recast).
- In accordance with Article 2a of EMIR.
- Whereas an entity that is subject to the EMIR Reporting Requirement can delegate the function of reporting, it cannot delegate its legal responsibility and liability for compliance with the EMIR Reporting Requirement.
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.