Shearman & Sterling LLP | FinReg | EMIR Refit Regulation Published
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  • EMIR Refit Regulation Published

    The Regulation amending the European Market Infrastructure Regulation, known as EMIR Refit or EMIR 2.1, has been published in the Official Journal of the European Union.

    The EMIR Refit amendments aim to introduce a simplified and more proportionate approach to certain aspects of EMIR as part of the EU's broader "Regulatory Fitness and Performance Program". Key changes include:
    • A new Financial Counterparty clearing threshold;
    • Changes to the definition of "Financial Counterparty", bringing central securities depositories and alternative investment funds into scope;
    • Amendments to the clearing obligations triggers;
    • A requirement on member states to bring their insolvency laws into line with the requirements of EMIR (e.g. to allow account segregation, default management by central counterparties and clearing members, "porting" and "leapfrog" payments to take place as envisaged in the legislation); and
    • A new obligation for clearing members and clients to provide clearing services on a fair, reasonable, non-discriminatory and transparent basis.

    The Regulation will enter into force on June 17, 2019.  The majority of the provisions will apply directly across the EU on that date, with the exception of:
    • Central counterparty obligations to provide clearing members with information regarding initial margin requirements and the manner in which initial margin is calculated, which will apply from December 18, 2019;
    • New processes and standards for the reporting of trades by Financial Counterparties on behalf of both counterparties, which will apply from June 18, 2020;
    • New Trade Repository requirements to establish procedures around data reconciliation, verification and transfer; and
    • Obligations imposed upon clearing members and clients to provide clearing services upon fair, reasonable, non-discriminatory and transparent commercial terms, which will apply from June 18, 2021.

    Previous iterations of the text allowed time for repapering and implementing revised processes. However, for those obligations that apply from June 17, 2019,  market participants do not have much time to comply. In particular, certain alternative investment funds will be reclassified as FCs, instead of Non-Financial Counterparties, and non-EU funds will be reclassified as third-country entities equivalent to FCs. The categorization of a fund as an FC or NFC or as a third-country equivalent entity is important since it determines whether certain key legal requirements in EMIR apply either directly (in the case of EU AIFs) or indirectly (in the case of non-EU AIFs trading with EU counterparties)—such as mandatory clearing, collateral rules and the reporting obligation. It is also important for persons that are dealing with funds to know the classification of their counterparties, since this determines the timeframe for confirmations, the frequency of portfolio reconciliation and compression and whether clearing and collateral obligations will apply. AIFs, their managers and counterparties affected by the new FC definition will need to implement enhanced conduct requirements and amend their ISDA documentation, taking into account whether they will become an FC+ or FC-. Non-EU funds may be asked to make changes by their EU bank counterparties. 

    Some EU member states may also struggle to bring their insolvency laws into line with EMIR and many of them – with the exception of the UK and Germany – would appear likely to be in breach of this requirement without introducing new national legislation.

    View the EMIR Refit text.

    View details of the EMIR Refit.

    You may like to view our client note, "EMIR REFIT: Impact of the Reclassification of Funds".

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