The following posts provide a snapshot of selected UK, EU and global wholesale financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
-
EU Eases EMIR 3 Clearing Mandate
02/19/2024
The Council of the European Union and European Parliament have reached provisional political agreement on the latest revisions to the European Market Infrastructure Regulation, publishing on February 14, 2024, the agreed text of the EMIR 3 Regulation and EMIR 3 Directive. The controversial mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products, has been substantially watered down from the European Commission's December 2022 proposal (we discussed the Commission's proposals in our client note, "Clearing in the EU After EMIR 3").
According to the final draft text, in-scope counterparties for the new "active account" requirement will be required to open and maintain accounts with EU CCPs and clear some transactions through EU CCPs for in-scope products. However, the Commission's (and some member states') ambitious and misguided attempt to force market relocations into Europe seem to have faltered. Even the largest EU derivatives traders (with EUR 6 billion + of open positions) need only clear a minimum of five (5) trades per annum for sub-categories each of the in-scope categories of products. In-scope products are interest rate derivatives denominated in euro and Polish zloty; and Short-Term Interest Rate Derivatives (STIR) denominated in euro. It had previously been proposed for CDS denominated in euro to be included, but this product is no longer in scope.
Read more. -
UK Regulator Consults on Proposed Reforms to the Commodity Derivatives Regulatory Framework
12/08/2023
The U.K. Financial Conduct Authority has launched a consultation on proposals for reforming the commodity derivatives regulatory framework, which covers position limits, the exemptions from those limits, position management controls, the reporting regime and the ancillary activities test. Responses to the consultation may be submitted until February 16, 2024.
The Financial Services and Markets Act 2023 has already made several reforms to the U.K.'s commodity derivatives regulatory regime. The MiFID II requirement for commodities position limits to be applied to all exchange-traded contracts and over-the-counter, or non-venue traded ("OTC"), contracts that are economically equivalent to exchange-traded commodity derivatives was revoked. Instead, the FCA will decide the scope of the commodity derivates to which position limits will apply. In addition, the powers for setting position controls were transferred from the FCA to the operators of trading venues. This contrasts with the EU approach, where position limits are not just set by the regulators, but actually in formulae in legislation, which have proven ill-thought-through and problematic for numerous markets. The FCA has retained the power to set position limits if certain conditions are satisfied, and has new rulemaking powers to establish how trading venues should set and apply position limits and what position management controls they should operate. Generally, the reversion of position limit controls to exchanges as self-regulatory organisations reflects the U.K.'s status quo ante, i.e., prior to MiFID II.
Read more. -
HM Treasury Seeks Views on Clearing Exemption for Pension Schemes
11/29/2023
U.K. EMIR (the onshored European Market Infrastructure Regulation) generally requires the clearing at a central counterparty of all interest rate swaps and credit default swaps. As announced earlier this year, HM Treasury has launched a review of an applicable exemption for pension funds, with the publication of a call for evidence. Currently, pension schemes meeting certain requirements are exempt from the clearing obligation for a temporary period. The exemption was included in EMIR due to the difficulty that pension funds would find in funding margin calls; nominally, to provide CCPs with time to develop solutions for the transfer of non-cash collateral by pension schemes to meet variation margin calls. CCPs require highly liquid collateral, mostly cash, as variation margin, but pension schemes are not set up to hold large amounts of cash and would have to amend their business model at high costs to do so. In June, the Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 extended the temporary exemption for pension schemes to June 18, 2025.
Read more. -
UK Extends Clearing Obligation Exemption for Pension Funds and Intragroup Transactions
05/03/2023
On April 28, 2023, the Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 were published, with an explanatory memorandum. These Regulations come into effect on June 12, 2023, and will extend the expiry date of the:- Exemption from the clearing obligation for pension schemes from June 18, 2023, to June 18, 2025. This means that U.K. and EEA pension funds will remain exempt from the U.K. clearing obligation. This change is made by amending U.K. EMIR, as provided for in the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019.
- Temporary intragroup exemption provisions from December 31, 2023, to December 31, 2026. This means that the U.K. clearing obligation and risk mitigation measures will not apply to OTC derivative contracts between U.K. firms and their overseas group entities.
This is the first time that HM Treasury has used its powers to extend these dates. -
UK Government Publishes Draft Legislation Revising Application of the Ancillary Activities Test for Commodity Derivatives and Emission Allowances
03/30/2023The U.K. government has published a draft statutory instrument (and related explanatory memorandum), which will be known as the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023. The draft SI will simplify the process for determining when a firm satisfies the “ancillary activities” test and reduce the burden on firms that apply the test. The changes were discussed under the Wholesale Markets Review and announced as part of the Edinburgh Reforms.
Read more. -
EU EMIR 3 Proposals Published
01/19/2023
The European Commission published proposals to amend the EU's European Market Infrastructure Regulation (EMIR) in December 2022 (EMIR 3). According to the Commission, some of these measures are aimed at improving the competitiveness of EU CCPs and of EU clearing activities, and to reduce existing reliance by EU counterparties on U.K. CCPs. Since the Brexit referendum, the EU has been grappling with the bloc's continued reliance on U.K. CCPs. The most controversial aspect is a new mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products.
EMIR 3 would also bring in several technical changes relating to the clearing thresholds and how these operate for non-EU exchange trade derivatives (ETDs) and the exemption for certain intragroup transactions. Other proposals seek to mitigate some of the issues arising from the strain on the energy market, in particular the difficulties in fulfilling margin obligations.
Our client note, "Clearing in the EU After EU EMIR 3" describes the EMIR 3 proposals in more detail. -
UK Regulators Propose Changes to Margin Requirements for Non-Centrally Cleared Derivatives
07/12/2022
The U.K. Prudential Regulation Authority and Financial Conduct Authority have issued a joint consultation paper on proposals to amend the U.K. Binding Technical Standards on margin requirements for non-centrally cleared derivatives (i.e., the U.K. version of Commission Delegated Regulation (EU) 2016/2251 on risk mitigation techniques). The BTS on risk mitigation techniques were onshored for Brexit, and the PRA and FCA are responsible for setting the requirements and are empowered to make adjustments, subject to approval from HM Treasury. The BTS supplement the European Market Infrastructure Regulation as onshored for Brexit, which requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The BTS prescribe required margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as listing securities eligible as collateral, such as sovereign bonds, covered bonds, some securitization instruments, corporate bonds, gold and some equities. Responses to the consultation may be submitted until October 12, 2022. The regulators will consider the feedback and then send their proposed draft amending BTS to HM Treasury for approval. It is proposed that the changes would take effect on publication by the regulators of the revised BTS.
Read more. -
LIBOR Transition: Further Proposed Changes to EU Clearing and Derivatives Trading Obligations
07/11/2022
The European Securities and Markets Authority has opened a consultation on proposals to amend the EU clearing and trading derivative obligations to reflect recent benchmark transitions from LIBOR to so-called risk-free rates. The scope of the EU derivatives clearing and trading obligations for interest rate derivatives based on LIBOR denominated in EUR, GBP, JPY and USD were amended earlier this year. Amendments to the Regulatory Technical Standards, which took effect on May 18, 2022, removed interest rate derivative classes referencing GBP and USD LIBOR from the clearing and trading obligations, removed IRD classes referencing EONIA and JPY LIBOR from the clearing obligation, and introduced a clearing obligation for IRD classes referencing three new risk-free rates, namely €STR, SONIA and SOFR.
ESMA is proposing to further amend the RTS to:- introduce a clearing obligation for overnight index swaps referencing TONA (JPY);
- expand the maturities in scope of the clearing obligation for OTC interest rate swaps referencing SOFR (USD); and
- introduce a derivatives trading obligation for certain classes of OTC interest rate swaps referencing €STR (EUR).
Responses to the consultation may be submitted by September 30, 2022. ESMA will consider the feedback before submitting for approval by the European Commission final draft amending RTS. -
European Securities and Markets Authority Publishes Regulatory Technical Standards on Revised Commodity Derivative Clearing Threshold
06/03/2022
The European Securities and Markets Authority has published a final report and Regulatory Technical Standards on its proposed increase to the commodity derivative clearing threshold under the European Market Infrastructure Regulation. ESMA published a discussion paper on the EMIR clearing thresholds in November 2021. Following feedback, ESMA's proposed RTS will increase the clearing threshold for commodity derivatives from €3bn to €4bn.
Read more.TOPIC : Derivatives -
HM Treasury Confirms Policy Approach on Wholesale Markets Review
03/01/2022
HM Treasury has published its consultation response to the Wholesale Markets Review, setting out summaries of responses received to its proposals and how changes will be progressed. There are certain areas that HM Treasury will not progress at this stage, and which will be subject to further consideration.
For the proposals that are being taken forward, implementation may be by legislation or pursuant to the Financial Conduct Authority's rules. HM Treasury states that legislation will be brought forward when Parliamentary time allows. In certain instances, where details are currently set out in legislation, but would sit better in regulatory rules, the government intends to legislate to delegate responsibility to the FCA for preparing detailed rules, which it states will be part of the implementation of the Future Regulatory Framework review. The FCA is expected to consult on its proposals for existing rule amendments in the first half of this year.
Read more. -
EU Grants Further Time-Limited Equivalence for UK CCPs
02/09/2022
An EU Commission Implementing Decision extending the equivalence of U.K. CCPs to June 2025 has been published in the Official Journal of the European Union. The equivalence decision applies to U.K. CCPs already established and authorized in the U.K. on December 31, 2020 and will apply from July 1, 2022, which is when the existing equivalence decision expires. Andrew Bailey, in his speech at TheCityUK Annual Dinner in February 2022, questioned why the equivalence decisions are time-limited. Most equivalence decisions for CCPs in other jurisdictions are not time-limited, although the EU is able to revoke a decision if a jurisdiction is deemed not to maintain equivalence with the EU regime.
The Decision follows the announcement yesterday by the Commission on the extension and the launch of a targeted consultation on the review of the central clearing framework in the EU. The consultation is seeking views on ways to improve the competitiveness of EU CCPs and clearing activities while also ensuring the appropriate supervision of their risks. The consultation closes on March 8, 2022.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Brexit for Financial Services, Derivatives, Financial Market Infrastructure -
EU Consultation on CCP Procyclicality of Margin Requirements
01/27/2022
The European Securities and Markets Authority has opened a consultation in which it proposes to amend the requirements on EU CCPs relating to an additional charge related to the procyclicality of margin. Responses to the consultation should be submitted by March 31, 2022. The European Market Infrastructure Regulation requires CCPs to impose, call and collect margins to limit their credit exposures from clearing members. A CCP must also regularly monitor and, if necessary, revise the level of its margins to reflect current market conditions considering any potentially procyclical effects of those revisions. Procyclicality of margin is the term used to describe the fact that margin requirements for the same portfolio are higher in times of market stress and lower in calm conditions. Regulatory Technical Standards under EMIR set out requirements for CCPs to use at least one of three options to limit procyclicality to the extent that the financial soundness of the CCP is not negatively affected. Generally, the EU imposes higher (more costly) margin charges than most other jurisdictions, including the U.S. and other major financial centres, which have essentially no extra procyclicality charge for CCPs.
Read more. -
European Securities and Markets Authority Provides Regulatory Forbearance for EU Clearing and Derivatives Trading Obligations in Support of LIBOR Transition
12/16/2021
The European Securities and Markets Authority has issued a statement in which it states that EU national regulators should not, from January 3, 2022, prioritize supervisory action for any failures by firms to comply with the mandatory clearing obligation under the European Market Infrastructure Regulation, for interest rate derivatives referencing EONIA, GBP LIBOR, JPY LIBOR or USD LIBOR and the derivatives trading obligation for IRD classes referencing GBP LIBOR or USD LIBOR. On November 18, 2021, ESMA submitted final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations in support of the benchmark transition to risk-free rates. However, ESMA is aware of the time that the approval process may take and therefore considers that regulatory forbearance is appropriate.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Derivatives, Financial Market Infrastructure, LIBOR Transition -
European Securities and Markets Authority Publishes Discussion Paper on Clearing Thresholds Under European Market Infrastructure Regulation
11/22/2021
The European Securities and Markets Authority has published a report and discussion paper seeking feedback on its review of the clearing thresholds under the European Market Infrastructure Regulation. Responses should be submitted by January 19, 2022.
Read more. -
European Securities and Markets Authority Publishes Proposed EU Clearing and Derivatives Trading Obligations Changes for LIBOR Transition
11/18/2021
The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations for the benchmark transition to risk-free rates. To support the transition away from EONIA and LIBOR to risk-free rates such as €STR, ESMA is proposing to amend the scope of the derivatives clearing and trading obligations for interest rate derivatives denominated in EUR, GBP, JPY and USD. In particular, ESMA is proposing to:- Remove IRD classes referencing GBP and USD LIBOR from the clearing and trading obligations.
- Remove IRD classes referencing EONIA and JPY LIBOR from the clearing obligation.
- Introduce a clearing obligation for IRD classes referencing €STR, SONIA and SOFR.
The draft RTS have been submitted to the European Commission for endorsement.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Derivatives, Financial Market Infrastructure, LIBOR Transition -
European Commissioner Announces Proposed Extension of Equivalence for UK CCPs
11/10/2021
European Commissioner McGuinness has announced that in early 2022 the European Commission will be proposing an extension of the time-limited equivalence granted to U.K. CCPs. The existing equivalence decision is due to expire at the end of June 2022. The Commissioner reiterated that the EU would continue to build out the capability of EU CCPs to reduce the reliance on U.K. CCPs. Furthermore, the EU will seek to strengthen the supervisory powers for EU-level supervision of CCPs. -
International Bodies Consult on Margin Practices
10/26/2021
An international consultation has been launched on the review of margining practices in the centrally and non-centrally cleared markets. The consultation is being run jointly by the Basel Committee for Banking Standards, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions. In March 2020, around the start of the COVID pandemic, large increases in margin occurred in the centrally and non-centrally cleared markets, furthering the so-called "dash for cash".
The consultation is considering a range of potential changes to the international framework, such as:- increasing transparency in the centrally cleared market;
- enhancing liquidity preparedness of market participants as well as liquidity disclosures;
- identifying data gaps in regulatory reporting;
- streamlining variation margin processes in centrally and non-centrally cleared markets;
- further work on evaluating the responsiveness of centrally cleared initial margin models to market stresses with a focus on impacts and implications for CCP resources and the wider financial system; and
- evaluating the responsiveness of non-centrally cleared initial margin models to market stresses.
-
UK Regulator Amends Derivatives Trading Obligation for LIBOR Transition Purposes
10/15/2021
Following its July 2021 consultation, the U.K. Financial Conduct Authority has published a Policy Statement amending the list of derivatives subject to the U.K. trading obligation for the purposes of the LIBOR transition.
The derivatives trading obligation under the U.K. version of the Markets in Financial Instruments Regulation requires U.K. investment firms to conclude transactions in certain derivatives on U.K. regulated markets, multilateral trading facilities, organised trading facilities or third-country venues in jurisdictions benefiting from U.K. equivalence decisions. In the absence of any equivalence decision, the FCA used its Temporary Transitional Power to provide transitional relief from December 31, 2020 (the end of the transition period) until March 31, 2022 for U.K. firms, EU firms using the U.K.'s temporary permissions regime and U.K. branches of overseas firms. The trading obligation currently applies to certain fixed-to-float interest rate swaps denominated in EUR, USD and GBP, and to certain index credit default swaps (iTraxx Europe Main and iTraxx Europe Crossover).
Read more.ATTORNEYS: Thomas Donegan, Kristina Killick, Sandy Collins
TOPICS : Derivatives, LIBOR Transition, MiFID II -
Bank of England Proposes Introducing Clearing Obligation for TONA Overnight Index Swaps
09/29/2021
The Bank of England has launched a consultation proposing to subject Overnight Index Swaps (OIS) that reference the Tokyo Overnight Average rate (TONA) to the U.K. derivatives clearing obligation under the U.K. version of the European Market Infrastructure Regulation. The BoE has already decided to remove contracts referencing JPY LIBOR from the clearing obligation starting December 6, 2021. Following recent announcements made by the Japanese authorities, the BoE now considers it appropriate to replace contracts referencing JPY LIBOR with contracts referencing TONA. The planned change would apply from December 6, 2021 or shortly thereafter. Responses to the consultation may be submitted until October 27, 2021.
Read more. -
Bank of England Confirms Changes to Derivatives Clearing Obligation to Reflect Benchmark Reforms
09/29/2021
The Bank of England has published a Policy Statement and final changes to the contracts subject to the derivatives clearing obligation under the U.K. version of the European Market Infrastructure Regulation. The U.K. onshored European Market Infrastructure Regulation imposes a clearing obligation on U.K. firms that are counterparties to certain OTC derivatives contracts. The clearing obligation applies to Interest Rate Swaps denominated in seven currencies (EUR, GBP, JPY, USD, NOK, PLN and SEK) and to two classes of credit default swap indices (iTraxx Europe Main and iTraxx Europe Crossover). The details are set out in three sets of Binding Technical Standards—Commission Delegated Regulation (EU) 2015/2205, Commission Delegated Regulation (EU) 2016/592 and Commission Delegated Regulation (EU) 2016/1178.
Read more. -
UK Taskforce on Innovation, Growth and Regulatory Reform Publishes Recommendations
06/16/2021
The Taskforce on Innovation, Growth and Regulatory Reform has published its report, making several recommendations for reforming the U.K.'s approach to regulation as well as practical suggestions for implementing the reforms. The main recommendation tasks the government with building a U.K. regulatory framework that has proportionality at its core and that is based on the principles of the common law. The report also provides specific proposals for regulatory reforms across several sectors, identified as high growth sectors, including the financial services sector. The TIGRR recommendations will be progressed by the newly established Brexit Opportunities Unit, which is being led by Lord Frost, Minister of State at the Cabinet Office. Consultations on proposals to implement these ambitious recommendations are expected later this year.
The TIGRR report recommends the approach to regulation is reformed along traditional common law lines, moving away from the EU codified system. The report suggests that the government reconsiders the approach to regulation with the aim of enhancing productivity, encouraging competition and invigorating innovation.
Read more. -
International Bodies Launch Survey on Margin Calls
05/05/2021
The Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructure and the International Organization of Securities Commissions has published a survey on margin calls as part of an investigation into liquidity shortfalls during the early stages of the COVID-19 pandemic. The combined effect of government measures to contain the pandemic in March 2020, together with market uncertainty, job losses and travel restrictions triggered a pullback in economic activity and stress on market liquidity. The non-bank financial intermediation sector was found to be particularly vulnerable to the liquidity shock.
Read more. -
UK Working Group on Sterling Risk-Free Reference Rates Publishes Paper on Ending New Use of GBP LIBOR-Linked Derivatives
02/24/2021
The U.K. Working Group on Sterling Risk-Free Reference Rates has published a paper on how market participants can meet the Working Group's intended deadlines for cessation of GBP LIBOR in derivatives.
Read more. -
EU Delays Derivatives Margin for Brexit Novations
02/17/2021
An EU Commission Delegated Regulation amending Regulatory Technical Standards on the application of EU bilateral margining requirements under the European Market Infrastructure Regulation has been published in the Official Journal of the European Union. The amendments to the RTS further extend the temporary exemptions from bilateral margining requirements for the following products and transactions.
Read more. -
EU Delays Clearing Obligation for Third-Country Intragroup Derivatives and Brexit Novations
02/17/2021
An EU Commission Delegated Regulation delaying the clearing obligation under the European Market Infrastructure Regulation has been published in the Official Journal of the European Union. The Delegated Regulation amends the three Regulatory Technical Standards on the clearing obligation, which provide for the application of the clearing obligation to interest rate swaps and credit default swaps. In particular, for intra-group derivatives transactions conducted with a third-country entity, the exemption from the clearing obligation will be extended until June 30, 2022. The EU has failed to determine whether many third countries are "equivalent" for these purposes, meaning that another delay is necessary to avoid penal charges on intra-group exposures of EU financial groups.
Read more. -
EU Grants Equivalence to More US CCPs
01/28/2021
An EU equivalence decision for U.S. CCPs regulated by the U.S. Securities Exchange Commission that are "covered clearing agencies" under the SEC rules has been published in the Official Journal of the European Union. The decision paves the way for these U.S. CCPs to be recognized by the European Securities and Markets Authority upon which they will be able to provide clearing services to EU trading venues and businesses. Relevant U.S. CCPs that potentially would be covered by this designation but which were not previously granted equivalence include the Fixed Income Clearing Corporation, National Securities Clearing Corporation, The Depository Trust Company and The Options Clearing Corporation. ICE Clear Credit LLC also registered with the SEC, however, this CCP already benefits from EU equivalence as it falls within the previous EU equivalence decision for U.S. CCPs regulated by the Commodity Futures Trading Commission. ICE Clear Europe, which was an EU CCP until Brexit, is also recognized under the EU's temporary equivalence for U.K. CCPs. LCH SA is also registered with the SEC, but is an EU CCP and so the equivalence regime is not applicable to it.
Read more. -
EU Consults on Potential Equivalence for Six Countries For Non-Centrally Cleared OTC Derivatives Risk Mitigation
01/20/2021
The European Commission has published for consultation draft equivalence decisions for six countries relating to the risk mitigation requirements for non-centrally cleared OTC derivatives under the European Market Infrastructure Regulation. EMIR requires counterparties to non-centrally cleared derivatives to comply with requirements on timely confirmation, portfolio compression, procedures for reconciliation of disputes and the exchange of collateral, collectively known as the risk mitigation techniques. The European Commission is empowered to adopt an equivalence decision declaring that the requirements of a third country are equivalent to the EMIR requirements on risk mitigation. To date, only the U.S. and Japan benefit from such decisions, both limited in scope. Each of the draft decisions for each country are detailed further below.
Read more.TOPIC : Derivatives -
EU Markets Authority Confirms Position on Derivatives Trading Obligation Post-Brexit
11/25/2020
The European Securities and Markets Authority has confirmed its position, originally proposed in March 2019, that the derivatives trading obligation under the EU Markets in Financial Instruments Regulation will continue to apply without changes, and as things stand without any U.K. equivalency, after the end of the Brexit transition period on December 31, 2020.
The derivatives trading obligation requires EU investment firms to conclude transactions in certain derivatives on EU regulated markets, multilateral trading facilities, organized trading facilities or third-country venues in jurisdictions benefiting from an EU equivalence decision. The trading obligation applies to certain fixed-to-float interest rate swaps denominated in EUR, USD and GBP and to certain index credit default swaps (iTraxx Europe Main and iTraxx Europe Crossover).
Read more. -
Revised Final Draft EU Technical Standards Published for Derivatives Margin and Clearing Obligations
11/23/2020
The European Supervisory Authorities have published final draft amending Regulatory Technical Standards on the application of EU bilateral margining requirements and the clearing obligation under the European Market Infrastructure Regulation in light of Brexit. The draft RTS are set out in two separate reports – one published jointly by the ESAs (covering the bilateral margining requirements for uncleared derivatives), the other published by the European Securities and Markets Authority (covering the clearing obligation for certain derivatives).
Read more. -
EU Authority Updates Statements on Reporting Obligations Post-Brexit Transitional Period
11/10/2020
The European Securities and Markets Authority has published updated statements regarding the end of the Brexit transition period on December 31, 2020.
Read more. -
UK Grants Equivalence to EEA CCPs
11/10/2020
The U.K. Central Counterparties (Equivalence) Regulations 2020 (SI No. 2020/1244) have been made, granting equivalence for EEA CCPs from 10:59 pm on December 31, 2020. The decision will enable U.K. businesses and trading venues to continue using the clearing services of EEA CCPs under the U.K. European Market Infrastructure Regulation after the end of the Temporary Recognition Regime, provided that the Bank of England grants the individual CCP concerned recognition status.
The EU has granted temporary equivalence for U.K. CCPs, which is set to expire in June 2022.
View the Central Counterparties (Equivalence) Regulations 2020, SI No. 2020/1244.
View details of the temporary equivalence decision for U.K. CCPs. -
International Swaps and Derivatives Association Letter on Timing of ISDA IBOR Fallbacks Protocol
09/21/2020
The International Swaps and Derivatives Association has written to the Co-Chairs of the Financial Stability Board Official Sector Steering Group seeking input on its proposed timing for the launch of its IBOR Fallbacks Protocol and IBOR Fallbacks Supplement. The Protocol and Supplement will implement fallbacks for derivatives contracts that reference discontinued or non-representative IBORs. The launch of the Protocol and Supplement is subject to approvals from various international competition authorities, which are still pending. Once the approvals have been obtained, ISDA intends to provide market participants with roughly two weeks' notice of the launch and effective dates of the Protocol and Supplement, allowing market participants to adhere to the Protocol 'in escrow' prior to its launch date. ISDA expects the effective dates of the Protocol and Supplement to occur approximately three months after the launch date, and in any case not before the second half of January 2021.
View ISDA's letter. -
European Commission Decision Temporarily Establishes UK CCP Equivalence
09/21/2020
The European Commission has published a Decision temporarily determining that U.K. central counterparties will be deemed equivalent to EU standards under the European Market Infrastructure Regulation. The Decision will apply from January 1, 2021 until June 30, 2022. The U.K.'s Brexit transition period ends on December 31, 2020, after which it will cease to form part of the EU's arrangement for financial services. The Decision grants equivalence for a limited 18-month duration.
Read more. -
EMIR 2.2 Secondary Legislation Published
09/21/2020
Three Commission Delegated Regulations have been published in the Official Journal of the European Union, supplementing the revised European Market Infrastructure Regulation. The Delegated Regulations contain provisions related to the changes introduced by EMIR 2.2, the amending EU Regulation that came into force on January 1, 2020 and introduced changes to the procedures and authorities involved in the authorization of central counterparties and the requirements for the recognition of third-country CCPs. EMIR 2.2 also introduced a new tiering system for third-country CCPs, making non-systemically important (or "Tier 1") third-country CCPs subject to less stringent requirements than systemically important (or "Tier 2") third-country CCPs. The Commission Delegated Regulations all relate to third-country CCP provisions of EMIR 2.2 and will enter into force on September 22, 2020. They have been published in the form adopted by the European Commission in July 2020.
Read more. -
European Central Bank Consults on Compounded €STR Rates
07/24/2020
The European Central Bank has launched a consultation on proposals to publish compounded term rates based on the euro short-term rate (€STR). The consultation closes on September 11, 2020. The ECB is requesting feedback on specific characteristics of the compounded rate using €STR. Publication would take place on a daily basis shortly after the €STR publication. Published maturities could range from one week up to one year. A daily index, making it possible to compute compounded rates over non-standard periods, is also envisaged.
View the ECB's consultation paper on compounded term rates based on €STR. -
European Central Bank Published Good Practice Guidance on Preparation for Benchmark Rate Reforms
07/23/2020
The European Central Bank has published a report on the results of its industry-wide assessment of Eurozone banks’ readiness for the benchmark interest rate reforms, which affect both EONIA and EURIBOR in the euro area. The purpose of the report is to share good practices that the ECB has identified in its horizontal assessment of the preparedness of Eurozone banks supervised under the Single Supervisory Mechanism. According to the ECB, banks need to improve their preparation for the reforms and escalate their implementation of risk mitigation measures.
Read more. -
EU Consultation on Guidelines for SFT Position Reporting by Trade Repositories
07/09/2020
The European Securities and Markets Authority has published a consultation paper on proposed Guidelines on the calculation of positions in Securities Financing Transactions by trade repositories under the EU Securities Financing Transactions Regulation. The consultation closes on September 15, 2020. ESMA intends to finalize the Guidelines for publication in Q4 2020 or Q1 2021.
The proposed Guidelines aim to ensure consistency of position calculation by trade repositories to national regulators, including the time of calculations, the scope of the data used in calculations, the treatment of outliers, the recordkeeping of data and the calculation methodologies. They also aim to ensure a consistent methodology is used under SFTR and the European Market Infrastructure Regulation.
View the consultation paper. -
Final EU Guidelines on the Treatment of Structural FX Under Capital Requirements Regulation
07/01/2020
The European Banking Authority has published final guidelines on the implementation of the structural FX provision under the Capital Requirements Regulation. The CRR requires institutions to calculate their net open positions in currencies according to specified formulae but permits institutions to exclude positions that have been taken for hedging purposes and that are structural. The guidelines will apply to both firms and national regulators from January 1, 2022, to allow firms time to comply with the new framework. However, regulators should review, update or revoke permissions already granted before the guidelines apply.
Read more. -
UK Legislation Made to Onshore EMIR 2.2
06/26/2020
The U.K. has published Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020 to onshore the new EU regime for third-country CCPs introduced by amendments to the European Market Infrastructure Regulation, known as EMIR 2.2. EMIR 2.2, which has applied since January 1, 2020, is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance and is widely regarded as a direct response to Brexit, given that three of the largest European CCPs are based in the U.K.
Read more. -
European Securities and Markets Regulator Publishes 2019 Annual Report and Updated 2020 Work Program
06/15/2020
The European Securities and Markets Authority has published its 2019 Annual Report together with an updated version of its 2020 Work Program, incorporating changes in response to the COVID-19 pandemic.
ESMA’s 2019 Annual Report discusses ESMA’s work in 2019, which included: (a) the entry into force of EMIR 2.2, including significant new responsibilities for ESMA in the authorization and supervision of CCPs; (b) ESMA’s common supervisory action on the application of the revised Markets in Financial Instrument Directive’s requirements on the assessment of appropriateness, for which ESMA will consider whether any follow-up work is needed in 2020; (c) reviews of MiFID II and the Markets in Financial Instruments Regulation, including on fair access to, and lowering the cost of, market data and the consolidated tape; and (d) sustainable finance, including technical advice delivered to the European Commission on the integration of sustainability risks for investment firms and investment funds into relevant EU legislation, a report on undue short-termism in securities markets and contributions to the technical expert group on sustainable finance which is due to deliver technical advice on delegated legislation relating to the EU Benchmarks Regulation.
Read more. -
European Commission Publishes Draft Delegated Regulation on Fees Charged to Third-Country Central Counterparties
06/11/2020
The European Commission has published a draft delegated regulation on the fees charged by the European Securities and Markets Authority to central counterparties established in third-countries that are recognized by ESMA and able to provide clearing services in the EU. The draft regulation will supplement the European Market Infrastructure Regulation. EMIR was revised twice during 2019. The second revision (known as EMIR 2.2) introduced changes to the procedures and authorities involved in the authorization of CCPs and the requirements for the recognition of third-country CCPs. EMIR 2.2, is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance and is widely regarded as a direct response to Brexit, given that three of the largest European CCPs are based in the U.K. Feedback on the draft delegated regulation can be submitted until July 9, 2020.
Read more. -
European Commission Publishes Draft Delegated Regulations on Criteria for Tiering of Third-Country CCPs and on Comparable Compliance
06/11/2020
The European Commission has published two draft delegated regulations, the first is on the criteria for determining whether a third-country CCP is systemically important and the second is on the minimum elements to be assessed by the European Securities and Markets Authority when assessing third-country CCPs’ requests for comparable compliance and the modalities and conditions of that assessment. The draft regulations will supplement the European Market Infrastructure Regulation. EMIR was revised twice during 2019. The second revision (known as EMIR 2.2) introduced changes to the procedures and authorities involved in the authorization of CCPs and the requirements for the recognition of third-country CCPs. “EMIR 2.2” is part of the EU’s push to enhance the regulation of CCPs amid concerns regarding potential CCP failures given their increasing systemic importance and is widely regarded as a direct response to Brexit, given that three of the largest European CCPs are based in the U.K. Feedback on the draft delegated regulations can be submitted until July 9, 2020.
Read more. -
European Systemic Risk Board Announces Further Actions to Combat Impact of COVID-19
06/08/2020
The European Systemic Risk Board has announced a series of further actions designed to combat the impact of COVID-19 on European financial markets. The actions relate to the five priority areas already identified by the ESRB as requiring particular focus in the context of the COVID-19 pandemic, as follows:- Implications for the financial system of guarantee schemes and other fiscal measures to protect the economy: the ESRB has published a Recommendation introducing minimum requirements for national monitoring of the financial stability implications of the various debt moratoria and guarantee schemes introduced by Member States to support economies through COVID-19 (Recommendation A); national regulators are also advised to regularly report information on these schemes to the ESRB in accordance with reporting templates to be published by the ESRB by June 30, 2020 (Recommendation B); national regulators implicated by the Recommendation should communicate the actions they have taken, or intend to take, in response to the Recommendation A by July 31, 2020 and Recommendation B by December 31, 2020;
-
EU Consultation on Draft Guidelines on Outsourcing to Cloud Service Providers
06/03/2020
The European Securities and Markets Authority has opened a consultation on draft guidelines on outsourcing to cloud service providers. The draft guidelines cover: (i) governance, documentation, systems and procedures that firms should have in place; (ii) the assessment and due diligence to be undertaken before outsourcing arrangements are entered; (iii) minimum elements that outsourcing agreements should include; (iv) exit strategies; and (v) access and audit rights. The consultation closes on September 1, 2020. ESMA expects to publish the final guidelines in Q4 2020 or Q1 2021.
Read more. -
European Securities and Markets Authority Publishes Updated Transparency and Position Limits Opinions for Third-Country Trading Venues
06/03/2020
The European Securities and Markets Authority has published two opinions on the application of post-trade transparency and position limits rules to third-country trading venues.
The first opinion relates to post-trade transparency requirements under the Markets in Financial Instruments Regulation. Under MiFIR, EU investment firms must publish information on transactions in financial instruments traded on an EU trading venue. ESMA’s opinion states that information about transactions concluded on a third-country trading venue should also be made public in accordance with MiFIR, but it is unnecessary for EU firms to republish such information where the transparency rules of the third-country trading venue are similar to those applicable to EU trading venues under MiFIR.
Read more. -
European Securities and Markets Authority Publishes Final Technical Advice on FRANDT Clearing Services Provision Under EMIR REFIT
06/02/2020
The European Securities and Markets Authority has published its final report and technical advice on the conditions for clearing services providers’ commercial terms to be considered fair, reasonable, non-discriminatory and transparent, in accordance with changes introduced under the revised European Market Infrastructure Regulation, or EMIR Refit. EMIR Refit requires the European Commission to adopt legislation setting out these conditions by June 18, 2021. The Commission tasked ESMA with publishing technical advice on the conditions, which ESMA launched a consultation on in October 2019. ESMA’s final technical advice takes account of the responses received to the consultation.
Read more. -
European Systemic Risk Board Actions on Five COVID-19 Priority Areas
05/14/2020
The European Systemic Risk Board has established five priority areas on which it intends to take action to combat the impact of COVID-19 on the EU financial system. In determining its actions, the ESRB hopes to ensure an effective response to the pandemic across the EU that prevents individual Member State actions from negatively impacting the EU Single Market and to take advantage of flexibility in regulatory standards to support financial institutions in providing financial services and liquidity.
Read more. -
EU Moves to Further Delay the Bilateral Margin Requirements for Uncleared Derivatives
05/04/2020
The European Supervisory Authorities have published updated joint draft Regulatory Technical Standards amending the existing EU risk mitigation techniques for uncleared OTC derivatives. In December 2019, the ESAs published a draft RTS to amend existing bilateral margin requirements made under the European Market Infrastructure Regulation in line with certain clarifications made to the related international framework by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions. These updated draft RTS include all those amendments and also delay the upcoming bilateral margin requirements to bring the EU framework in line with the global timeline. In response to the coronavirus outbreak, the Basel Committee announced in April 2020, a one-year deferral for the implementation of the final two phases of the joint Basel Committee and International Organization of Securities Commissions' framework for non-centrally cleared derivatives margin requirements.
Read more. -
International Swaps and Derivatives Association Announces Preliminary Results of LIBOR Pre-Cessation Fallbacks Consultation
04/15/2020
The International Swaps and Derivatives Association has announced the preliminary results of its consultation on pre-cessation fallbacks for LIBOR-referencing derivatives. The consultation was launched in February 2020, and sought industry responses on ISDA’s proposals to add a pre-cessation trigger to the LIBOR cessation fallbacks ISDA is proposing to implement in its standard documentation. The trigger would cause LIBOR-based derivative contracts to fall back to an alternative reference rate in the event that the U.K. Financial Conduct Authority deemed LIBOR to be no longer representative.
Read more. -
Basel Committee on Banking Supervision Announces Further Measures to Alleviate COVID-19 Impact
04/03/2020
The Basel Committee on Banking Supervision has announced a series of measures designed to reduce the impact of COVID-19 on the global banking sector. The latest measures are designed to facilitate bank lending to the real economy and boost banks’ operational capacity to the financial strain of COVID-19. They follow the extension to Basel III implementation deadlines announced by the Group of Central Bank Governors and Heads of Supervision on March 27, 2020.
Read more.