ESMA Proposes Two Year Deferral of EMIR Clearing Obligation for Intragroup Transactions

ESMA is proposing to extend the exemptions from the EMIR clearing obligation for intragroup transactions with a third country until 21 December 2020, to avoid subjecting those entities to duplicative or conflicting rules. This will also allow relevant counterparties to continue to hedge their risks in a centralised manner and avoid jeopardising their ability to enter intragroup transactions.

Equivalence Decisions

Under Article 13 of EMIR, the European Commission is empowered to adopt implementing acts declaring that the legal, supervisory and enforcement arrangements of a third country:

  • are equivalent to the requirements laid down in EMIR as regards the application of the EMIR clearing, risk mitigation and reporting requirements;
  • ensure protection of professional secrecy that is equivalent to that set out in EMIR; and
  • are being effectively applied and enforced in an equitable and non-distortive manner so as to ensure effective supervision and enforcement in that third country.    

The effect of an Article 13 equivalence decision is that counterparties entering into transactions subject to EMIR are deemed to have fulfilled their clearing, risk mitigation and reporting requirements under EMIR, where at least one of the counterparties is established in an equivalent third country.  This also avoids subjecting those entities to duplicative or conflicting rules.

The Clearing Obligation

Currently, the clearing obligation is set out in three Commission Delegated Regulations (“CDR”) which mandate a range of interest rate and credit derivative classes to be cleared. Each CDR includes a provision related to intragroup transactions with a third country group entity which defers the application of the clearing obligation for these intragroup transactions in the absence of an equivalence decision.

The first deferral for interest rate derivative classes denominated in the G4 currencies, which is set out in CDR 2015/2205, expires on 21 December 2018.  The other two deferral expiration dates are 9 May 2019 for credit derivative classes specified in CDR 2016/592  and 9 July 2019 for interest rate derivative classes denominated in NOK, PLN and SEK specified in CDR 2016/1178, respectively.

However, to date the European Commission has not adopted any equivalence decisions under Article 13 of EMIR.  Consequently, in its Final Report No. 6 on the Clearing Obligation (Intragroup) (here) ESMA is proposing to defer the application of the clearing obligation for relevant transactions for a further two years until 21 December 2020.  The deferral will apply to all 4 categories of counterparty covered by the clearing obligation.

The RTS have been sent to the European Commission for endorsement.  Following this, they will be sent to the European Parliament and Council of the EU for scrutiny.

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.