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Buy-side perspective: Final EMIR REFIT text published

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


In this briefing we summarise the issues that buy-side entities should consider in light of forthcoming changes to EMIR.

Background to the EMIR REFIT

Article 85(1) of European Market Infrastructure Regulation1 (“EMIR”) required the European Commission to review the legislation by August 2015 and to submit a report of its findings to the European Parliament and the Council of the European Union. The European Commission published its report in November 2016. The report concluded that changes were needed to the legislation to tackle disproportionate costs and burdens for non-financial counterparties. The Commission included its EMIR review in its 2016 Regulatory Fitness and Performance Programme (the “REFIT”).

The final text amending EMIR (the “REFIT Regulation”) was published on 15 May 2019 and is available here. The final text is, as of the date of this briefing, yet to be published in the EU’s Official Journal.

Relaxation of clearing requirements

The scope of the clearing requirements has been reduced to ease the operational burden for some buy-side entities.

Small financial counterparties

A new category of small financial counterparty (“SFC”) has been introduced. SFCs are financial counterparties (“FCs”) with trading volumes that are considered too low to pose an important systemic risk and for central clearing to be economically viable. An FC is an SFC if its aggregate month-end derivatives positions together with those of other entities within its group are below:

• €1 billion in the case of credit and equity derivatives; and

• €3 billion in the case of interest rate, foreign exchange and (in combination with any other derivatives not expressly mentioned) commodity derivatives.

In contrast to the equivalent thresholds that apply to non-financial counterparties (“NFCs”), derivatives entered into for hedging purposes are taken into account when performing the above calculation. If an SFC exceeds the threshold with respect to a particular class of derivative, the clearing obligation will apply across all classes.

SFCs will be exempt from the mandatory clearing requirements under EMIR. SFCs will, however, still be subject to the other EMIR requirements, including the obligation to exchange variation margin.

Non-financial counterparties

The REFIT Regulation changes the way that the clearing thresholds for NFCs apply. Under the REFIT Regulation, the calculation of the aggregate month-end average derivatives positions to determine whether or not the threshold is exceeded will be performed on an annual rather than on an every 30 working day basis. The change to an annual calculation is intended to alleviate the operational burden of more frequent calculations on NFCs.

The scope of the clearing obligation for NFCs has also been narrowed so that NFCs are only subject to the clearing obligation with regard to the asset class or asset classes that exceed the clearing threshold (in contrast to the position for SFCs described above).

A fairer future for the buy-side?

Clearing members and clients which provide clearing services, whether directly or indirectly, will be required to provide those services under “fair, reasonable and non-discriminatory and transparent commercial terms” (the “FRANDT Principle”). ESMA is mandated to develop regulatory technical standards to further define the FRANDT Principle.

The application of the FRANDT Principle to client clearing agreements will be of particular interest to buy-side clients. Client clearing agreements are often drafted with the principle aim of protecting clearing members and typically contain onerous provisions from the perspective of buy-side entities. Buy-side entities are encouraged to participate in consultations regarding the development of the regulatory technical standards if they wish to raise any concerns regarding the terms offered for client clearing.

Trade reporting

A number of changes to the EMIR reporting requirements will reduce the operational burden for buy-side entities. In particular:

1. Transactions between affiliates within the same group where at least one of the counterparties is an NFC will no longer be subject to the trade reporting obligation provided that certain conditions are met.

2. An NFC will no longer required to report details of the transactions it concludes with an FC or, in some cases2, a third country entity that would be an FC if established in the EU. Instead the FC will be responsible for reporting. The NFC will be required to provide certain details to the FC needed in order for the FC to submit the report. An NFC can still to choose to report their OTC derivative contracts if it chooses to do so. In such cases, the NFC should inform the FC accordingly and should be responsible, and legally liable, for reporting that data and for ensuring their correctness.

3. The back-loading requirement (to report historic transactions that were no longer outstanding when the reporting obligation under EMIR came into effect) has been removed.

Pension schemes

The exemption from the mandatory clearing obligation in respect of risk reducing transactions available to pensions schemes has been extended for two years with an option to extend twice more for additional one year periods.

Pension schemes that fall into the new SFC category will be able to rely upon the permanent clearing exemption for so long as their trading volumes fall below the relevant threshold.

Fund managers

A number of the changes to EMIR effected by the REFIT Regulation are directly relevant to fund managers. Fund managers will be some of the few buy-side entities which could face an increased regulatory burden as a result of the REFIT Regulation.

Responsibility for reporting

Management companies of undertakings for collective investment in transferable securities (“UCITS”) and managers of alternative investment funds (“AIF”) will now be responsible and legally liable for reporting on behalf of the underlying fund. Prior to the REFIT Regulation, the reporting obligation fell on the UCITS or AIF itself. Fund managers may wish to review their agreements, both with the funds that they manage and any delegated reporting agreements with their bank counterparties, to ensure that they reflect the new position.

EU AIFs managed by non-EU AIFMs now FCs

The definition of FC has been expanded to cover all AIFs established in the EU and all AIFs managed by an EU authorised or registered AIFM. Previously only AIFs (irrespective of their location) with an EU authorised or registered AIFM were captured. A number of the EMIR requirements, including, for example, those in relation to variation margin, will now apply to all AIFs whereas this was not necessarily the case for EU AIFs managed by non-EU AIFMs previously.

Non-EU AIFs managed by non-EU AIFMs: Indirect application

Non-EU AIFs managed by non-EU AIFMs will continue to be classified as “third country entities”. The EMIR requirements will therefore have only an indirect impact on them when they deal with EU counterparties. The requirements that may have an indirect effect when dealing with EU counterparties include the mandatory margin and clearing requirements.

It is usual for EU entities to request a representation from their non-EU AIF counterparties managed by non-EU AIFMs specifying that the AIF would be an NFC if it were established in the EU. Non-EU AIFs managed by non-EU AIFMs can no longer give this representation and may therefore need to amend their documentation.

The table below provides a summary of the position following the implementation of the REFIT Regulation.










Third country entity that would be an FC if established in the EU


The REFIT Regulation will apply to UK entities (at least for a time) whether or not the UK withdraws from the EU with, or without, a deal.


The terms of the Withdrawal Agreement agreed between the UK and the EU published on 14 November 2018 (the “Withdrawal Agreement”), provide for EU laws to continue to apply in the UK until 31 December 2020 (i.e. the end of the transitional period). This means that EU laws, including the REFIT Regulation, will apply in the UK as if the UK were still an EU member state, until the transitional period ends. At the end of the transitional period, EU laws will no longer apply in the UK and only the laws of the UK will apply.

Our briefing regarding the finalised Withdrawal Agreement and financial services can be found here.


Following Brexit, EMIR will no longer apply directly in the UK and will cease to apply directly to UK buy-side entities.

The UK will onshore EMIR requirements (“Onshored EMIR”) under the European Union (Withdrawal) Act 2018 (“EUWA”). The EUWA preserves existing UK domestic legislation which implements EU Directives and provides for the incorporation of directly applicable EU Regulations, so far as operative immediately before exit day, into UK law on the date of withdrawal. Ministers have powers to make statutory instruments amending UK law to remedy deficiencies in the onshored EU legislation arising from Brexit.

Draft UK legislation on-shoring REFIT has not yet been published. It is likely however that, as with EMIR, the REFIT legislation will be on-shored with minimal changes.

Our briefing regarding the impact of a no-deal Brexit on derivatives entered into by UK buy-side entities can be found here.


Subject to a few exceptions, the changes will apply directly in all EU member states 20 days after its publication in the EU’s Official Journal.

How Eversheds Sutherland can assist

Our global derivatives team has been advising clients regarding the EMIR requirements since they were first introduced. As a buy-side focused practice, we have a deep understanding of the requirements of buy-side entities including challenger banks, building societies, investment managers, insurance companies, pension schemes and commodities firms. We are ideally placed to support buy-side firms with changes to their processes and documentation required as a result of the REFIT Regulation.

1. Regulation (EU) No 648/2012 of European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories.

2. If the third country entity reports details of the transaction under its home reporting regime and that regime has been determined equivalent under EMIR.