EU Authority Calls For Non-Enforcement of Impending Clearing Obligation for Small Financial Counterparties and of the Backloading Requirement

The European Securities and Markets Authority has published a statement on the impending clearing and trading obligations for small financial counterparties and the reporting backloading requirement. Under the European Market Infrastructure Regulation, small FCs in Category 3 – FCs with less than €8 billion in aggregate month-end average of outstanding gross notional amount of uncleared derivatives at group level – are due to start clearing interest rate and credit derivatives subject to the clearing obligation on June 21, 2019. Once the clearing obligation is triggered, the related trading obligation under the Markets in Financial Instruments Regulation may also be triggered. In addition, the reporting backloading requirement is due to come into effect on February 12, 2019. However, it is foreseen that, under the EU's proposals to make technical changes to EMIR, known as EMIR Refit or EMIR 2.1, Category 3 FCs below the clearing threshold will be exempt from the clearing obligation and the backloading requirement will be deleted. The final text of EMIR Refit is now available, although it remains to be translated and published in the Official Journal.  Whilst EMIR Refit remains not in force, these obligations would technically arise, only to be eliminated shortly afterwards with the passage of this new legislation. In its statement, ESMA confirms that it does not expect national regulators to focus on any non-compliance by small FCs with the clearing obligation or by market participants with the backloading requirements.

View ESMA's statement.

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