Ireland: Derivatives Clearing Under EMIR – Update On Recent Regulatory Developments
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Commission Implementing Decision extending temporary
equivalence of UK regulatory framework for CCP
The European Commission confirmed, in its
Commission Implementing Decision (EU) 2020/1308, published on
21 September 2020, that the UK’s legal and regulatory
supervision regime of UK central counterparties
(CCPs) was to be considered temporarily equivalent
for a period of 18 months from 1 January 2021 until 30
June 2022.
On 8 February 2022, the European Commission confirmed, in
its
Commission Implementing Decision (EU)
2022/174 (Implementing Decision), that
the equivalency in respect of the UK’s legal and regulatory
supervision of UK CCPs has been extended until 30 June
2025. The European Commission noted in the Implementing
Decision that some transactions cleared in UK CCPs simply cannot be
cleared elsewhere at this point in time. The extension of the
temporary equivalence to 30 June 2025 is intended as a sufficiently
lengthy provision of time to allow the European Commission to
revise the EU supervisory system for CCPs and to encourage the
development of the clearing capacity of EU CCPs. UK CCPs can,
therefore, be continued to be used by EU counterparties (such as
Irish UCITS/ AIFs) until the expiry of this extended temporary
equivalence period.
The Implementing Decision entered into force on 10 February 2022
and will apply from 1 July 2022.
European Commission consults on review of EU CCP framework
On 8 February 2022, the European Commission also published
a
targeted consultation paper on a review of the EU central
clearing framework to improve the attractiveness of EU CCPs in
order to reduce the EU’s overreliance on systemic third-country
CCPs. The paper seeks stakeholders’ views on a range of topics,
including:
- Clarifying the interaction between Regulation (EU) 648/2012 as
revised (European Market
Infrastructure Regulation or EMIR)
and other relevant legislation such as Directive 2014/65/EU
(MiFID II) and Directive 2009/65/EC (UCITS
Directive); - Introducing measures to incentivise EU counterparties to reduce
excessive exposures to Tier 2 third country CCPs; - Introducing a monitoring process to measure the progress of EU
counterparties towards reducing their exposures to Tier 2
CCPs; - Measures aimed at EU CCPs, such as ways to support them in
expanding their range of clearing services and improving the
current setup of payment and settlement arrangements available to
them in the EU; - Strengthening the supervisory framework for EU CCPs and giving
EU-level supervision a stronger role, to better address risks
involved in increased cross-border clearing activity, simplify, and
accelerate procedures, remove legal uncertainties, and facilitate
co-ordination with third country supervisory authorities; - Widening the scope of clearing members and clients accessing
CCPs to include entities such as pension scheme arrangements,
private entities that do not access CCPs directly and public
authorities; and - Widening the scope of the products offered for clearing or
required to be cleared to include products such as equity
derivatives, repurchase and foreign exchange derivatives.
This consultation paper follows a
statement from the European Commission, published on 10
November 2021, announcing the Commission’s proposal for central
clearing.
Alongside the consultation paper, the Commission published
a
call for evidence for an impact assessment, within which
the European Commission indicates that it plans to adopt
legislative proposals in Q3 2022.
The closing date for responses is 8 March 2022.
European Commission adopts amendments to RTS clearing and
derivative trading obligations under EMIR in light of benchmark
transition
On 8 February 2022, the European Commission adopted a
Delegated Regulation amending the regulatory technical
standards (RTS) laid down in Delegated Regulation
(EU) 2015/2205 to reflect the LIBOR transition (Delegated
Regulation).
The Delegated Regulation follows the European Securities Markets
Authority’s (ESMA)
final report on draft RTS on the clearing obligations
(CO) and derivative trading obligations
(DTO) in view of the benchmark transition to risk
free rates under Article 5(2) of EMIR, which was published on 18
November 2021.
The Delegated Regulation will amend the RTS to remove from the
CO those classes of derivatives that reference the Euro Overnight
Index Average (EONIA), Pound Sterling
(GBP) London Interbank Offered Rate
(LIBOR) or Japanese Yen (JPY)
LIBOR. It will also bring within the CO classes of over the counter
(OTC) interest rate derivatives referencing the
Euro Short-Term Rate (ESTR), Secured Overnight
Financing Rate (SOFR), Secured Overnight Index
Average (SONIA) or Tokyo Overnight Average
(TONA) that certain CCPs have been authorised to
clear.
Finally on 8 February 2022, the European Commission adopted a
second
Delegated Regulation amending the RTS laid down in
Delegated Regulation (EU) 2017/2417. This Delegated Regulation
provides for the removal from the derivatives trading obligation
(DTO) of derivatives referencing both GBP and US
Dollar (USD) LIBOR. Subject to the DTO are
interest rate swaps (IRS) with 3M or 6M tenors
denominated in EUR, USD and GBP and Index Credit Default Swaps
(Index CDS).
Both Delegated Regulations will be considered by the Council of
the EU and the European Parliament. If neither object, they will
enter into force the day after their publication in the Official
Journal of the European Union.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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