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EMIR update - FCA supervisory priorities and RTS on clearing obligation for swaps

  • United Kingdom
  • Financial services and markets regulation - EMIR
  • Financial services


FCA supervisory priorities

The FCA has updated its website to set out its supervisory priorities in respect of Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR) for 2015. Areas of focus will include:

  • compliance with trade reporting (which is relevant to both over-the-counter and exchange traded derivatives), including having:
    • established links with a trade repository or having appropriately delegated reporting
    • internal systems to ensure the accuracy of reports
    • acquired Legal Entity Identifiers and ensuring that these are renewed annually
  • non-financial counterparties assessing and monitoring their status in respect of the clearing threshold
  • clearing members complying with their obligations in respect of segregation, account offering and disclosure of risks and costs to clients who use their clearing services
  • the readiness of firms required to clear derivatives transactions through a clearing house in respect of the clearing obligation and collateralising over-the-counter derivatives that are not cleared.

If you are in any doubt as to whether you are compliant with the obligations highlighted by the FCA or any other EMIR requirements, please contact a member of the derivatives team set out below.

Regulatory Technical Standard on the clearing obligation for interest rate swaps

On 18 December 2014, the European Commission (the Commission) sent a letter to the European Securities and Markets Authority (ESMA) informing ESMA of its intention to endorse an amended version of the draft regulatory technical standard (the RTS) on the clearing obligation for interest rate swaps (IRS) that ESMA sent to the Commission on 1 October 2014.

Please see our previous briefing, EMIR: ESMA publishes final draft RTS for central clearing of interest rate swaps under EMIR, for details of ESMA’s proposed RTS.

The Commission has proposed three amendments to the RTS:

1. Postpone the start date of the frontloading requirement

ESMA proposed that counterparties in Categories 1 (clearing members) and 2 (financial counterparties and alternative investment funds that are non-financial counterparties above the clearing threshold which, in each case, are not included in Category 1 and which belong to a group whose aggregate month-end average notional amount of non-centrally cleared derivatives over a certain three-month period is above €8 billion) will have to centrally clear those IRS transactions which they have concluded between the date of publication of the RTS in the Official Journal of the European Union and the respective starting date of the clearing obligation (frontloading).

The Commission is concerned that the proposed start date of the frontloading requirements does not allow affected counterparties to implement the practical arrangements that are required for frontloading and therefore recommends that the start date of frontloading should be delayed until counterparties (i) have certainty as to whether the IRS transactions that they enter into will be subject to frontloading and (ii) can implement the practical arrangements for frontloading

2. Clarify the calculation of the threshold for alternative investment funds

In order to assess whether an alternative investment fund meets the threshold to be included in Category 2, the Commission has recommended that the RTS should make it clear that the threshold should be calculated per single fund rather than at group level. However, this should only be the case where, in the event of insolvency, the funds in the group are distinct legal entities that are not collateralised, guaranteed or supported by other funds in the group or the investment manager of the funds.

3. Exclude non-EU intragroup transactions from the scope of the clearing obligation

ESMA proposed that over-the-counter derivatives transactions entered into between two counterparties established in the EU and in a non-EU country and belonging to the same group should not be subject to the clearing obligation for a period of three years. The Commission has identified that such transactions could be exempted from the clearing obligation under equivalence arrangements. However, equivalence decisions cannot be made before the RTS is in force. The Commission has therefore recommended that such transactions should be excluded from the clearing obligation for a sufficient period of time to allow the Commission to adopt equivalence decisions or until those decisions are adopted (whichever is earlier).