Shearman & Sterling LLP | FinReg | EU Delays Clearing Obligation for Third-Country Intragroup Derivatives and Brexit Novations
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  • EU Delays Clearing Obligation for Third-Country Intragroup Derivatives and Brexit Novations

    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.

    In addition, the amendments permit Brexit-related novations of contracts to occur without triggering the clearing obligations. The clearing obligation for such novations is deferred until February 18, 2022, provided the obligation was not triggered by February 18, 2021 and the contracts are novated for the sole purpose of replacing the counterparty established in the U.K. with a counterparty established in a Member State. A similar transitional provision has been established for the initial margin obligation.
    Finally, the minimum remaining maturities' requirements will be removed in alignment with the removal of the frontloading requirement under EMIR Refit.

    The amending Regulation is directly applicable across the EU from February 18, 2021.

    View the amending Commission Delegated Regulation

    View details of the amendments to the initial margin requirements

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