EU Supervisory Authorities Consult on Aligning EMIR Clearing and Risk-Mitigation Obligations For Securitizations With Those For Covered Bonds

The Joint Committee of the European Supervisory Authorities has published two consultations on proposed amendments to: (i) Regulatory Technical Standards on the clearing obligation under the European Market Infrastructure Regulation for certain classes of OTC derivatives; and (ii) RTS on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP. The proposed changes aim to incorporate the provisions of the Securitization Regulation (also known as the STS Regulation), which entered into force on January 17, 2018.

The Securitization Regulation notes that there is a degree of substitutability between covered bonds and securitizations. The Securitization Regulation therefore amends EMIR, among other things, to ensure consistency of treatment between the regime for derivatives transactions associated with covered bonds and the one for securitizations, with respect to the clearing obligation and the margin requirements for non-centrally cleared OTC derivatives. The ESAs have been mandated to make the necessary changes to existing RTS to effect consistent treatment.

Under EMIR, derivatives transactions associated with covered bonds benefit from an exemption from the clearing obligation, provided that the OTC derivatives have been used only to hedge interest rate or currency mismatches and that there are arrangements in place which adequately mitigate counterparty credit risk. Covered bonds are also subject to special provisions on the level and type of collateral required with respect to OTC derivative contracts.

The first consultation, on amendments to the EMIR clearing obligation, sets out proposed amendments to relevant existing RTS, to extend the exemption from the clearing obligation to Simple, Transparent and Standardized (or STS) securitizations.

The second consultation, on risk-mitigation techniques, sets out proposed amendments to the existing RTS, to extend to STS securitizations the provisions on the level and type of collateral for risk mitigation that were adopted for covered bonds. The proposed treatment will apply only where a STS securitization structure meets a specific set of conditions equivalent to the ones required to covered bonds issuers.

The proposals in either consultation only cover securitizations that qualify as STS securitizations under the Securitization Regulation.

Comments on both consultations are requested by June 15, 2018. A public hearing will take place at the EBA's premises on May 31, 2018, from 15.00 to 16.00 U.K. time.

View the consultation on the EMIR clearing obligation.

View the consultation on risk-mitigation techniques for non-centrally cleared OTC derivatives.

View the relevant existing RTS on the clearing obligation (i) Regulation (EU) No 2015/2205 and (ii) Regulation (EU) No 2016/1178.

View the existing RTS on risk-mitigation techniques (Regulation (EU) No 2016/2251).