Legal Updates

 Financial RegulationFebruary 22, 2022

Derivatives Clearing under EMIR – Update on recent regulatory developments

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For further information on any of the issues discussed in this publication please contact the related contact(s) on this page.

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.

If you have any questions or require assistance, please contact the authors or your usual Dillon Eustace contact.

DISCLAIMER: This document is for information purposes only and does not purport to represent legal advice. If you have any queries or would like further information relating to any of the above matters, please refer to the contacts above or your usual contact in Dillon Eustace.

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