Welcome Reprieve in respect of EMIR/MiFIR Obligations

Certain entities have received a welcome reprieve from obligations under EMIR and MiFIR to which they would otherwise have been subject, given the delays in finalising the EMIR Refit process.

The EMIR clearing obligation will start to apply to Category 3 counterparties1 on 21 June 2019.  On the same date, such Category 3 counterparties will also become subject to the MiFIR trading obligation, as their exemption from the trading obligation is linked to the temporary exemption from the EMIR clearing obligation.

However, on 4 May 2017, the European Commission, through its Regulatory Fitness and Performance (REFIT) Programme, proposed amending EMIR to create a new category of “small” financial counterparties, whose derivative positions are below the clearing thresholds and which will be exempted from the clearing obligation, which proposal is supported by both the European Parliament and the Council. As the Refit negotiations are not yet finalised, there is a risk that small financial counterparties will need to start clearing their inscope derivatives on 21 June 2019, but will subsequently become exempt from the clearing obligation once the EMIR Refit proposal is adopted.  

Significant operational challenges have also arisen with respect to compliance with the EMIR reporting obligation as it applies to derivatives that were outstanding on or after 16 August 2012 and terminated before the EMIR reporting obligation commenced on 12 February 2014 (known as backloading).  Following on from a European Securities and Markets Authority (ESMA) recommendation that the backloading requirement be waived (the reported data was considered to be of limited usefulness given the level of reconciliation failures), the Refit proposals remove the backloading requirement from Article 9 of EMIR.  However, with 12 February 2019 being the deadline for completion of backloading, it seemed that counterparties in scope for the EMIR reporting obligation would become subject to backloading pending finalisation of the Refit process.

On 31 January 2019, ESMA issued a public statement that, whereas neither it nor the national competent authorities (in the case of Ireland, the Central Bank of Ireland) possesses any formal power to disapply a directly applicable EU legal text, or even delay some of its obligations, in light of the above-mentioned issues, ESMA expects competent authorities generally to apply their risk-based supervisory powers in their day-to-day enforcement of EMIR and MiFIR in a proportionate manner and not to prioritise these matters in their risk-based supervisory powers in their day-to-day enforcement of applicable legislation.

The Central Bank of Ireland responded to the above ESMA statement on 4 February 2019 (here), confirming that, reflecting ESMA's recommendation, and pending the entry into force of EMIR Refit, it will apply its risk-based supervisory powers in the day-to-day enforcement of applicable legislation (i.e. EMIR’s reporting and clearing obligations and MiFIR’s trading obligation) in a proportionate manner.

  1. Financial counterparties that are below €8 billion in aggregate month-end average of outstanding gross notional amount of non-cleared derivatives at group level that meet certain criteria

This document has been prepared by McCann FitzGerald LLP 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.