The revision of the European Market Infrastructure Regulation (EMIR) made considerable progress in 2017 (see info box "EMIR")¹. In May, the European Commission published two proposals for amending EMIR. The first proposal deals mainly with adjustments to the supervision of central counterparties that provide services for the EU market from a third country. These amendments are above all being discussed in connection with the impending Brexit (EMIR 2). The second proposal is aimed at making the rules for derivatives simpler and more efficient. Simplifications are to be created especially for smaller market participants. The backdrop to these efforts is the European Commission's "Regulatory Fitness and Performance" (REFIT) programme, which is meant to ensure that EU legislation delivers results for citizens and businesses effectively and at minimum cost. On 11 December 2017, the Council published a common political direction for the proposed amendments triggered by the REFIT programme. The amendments proposed as part of EMIR 2 are, however, still being debated.

The main ways to simplify the existing EMIR regulations the European Commission has identified as part of the REFIT programme are outlined below.

Reporting obligation

In the European Commission's opinion, there is firstly a need to amend the reporting obligation for OTC contracts. In future, derivatives contracts will no longer be reported by all parties to the contract, but only by the central counterparty. If a contract involves a small non-financial counterparty² and a financial counterparty, it will in future be reported only by the financial counterparty – which reports on behalf of the non-financial counterparty as well.

Secondly, intragroup transactions are to be exempt from the reporting requirement, if one of the counterparties is a non-financial counterparty. Reporting on historical transactions will likewise no longer be required. These measures are aimed at significantly simplifying the reporting system.

Furthermore, it is being proposed that non-financial counterparties are required to clear only the asset classes for which they have breached the clearing threshold, and no longer all asset classes. Whether the threshold has been breached will, moreover, no longer be determined on an ongoing basis, but calculated once a year. In this way, the Commission intends to ease the burden on non-financial companies in particular, i.e. companies in the real economy. According to the proposal, they will no longer be required to monitor what are normally small derivatives positions on an ongoing basis.

Financial counterparties

The proposal also introduces a clearing threshold for financial counterparties. This means that, if a financial counterparty does not exceed a specific gross nominal volume of OTC contracts, it will not be required to clear the OTC derivatives. Associated with that is a simplified requirement for undertakings whose derivatives business volume is very small, since the cost of meeting the requirements is fairly small relative to the volume traded.

The simplifications for these undertakings, which are not systemically important, are intended to prevent these companies from opting not to hedge relevant business risks for cost reasons.

The proposal also removes frontloading, i.e. the retrospective clearing obligation for contracts entered into after EMIR entered into force, but before the clearing obligation commenced.

Suspension of clearing obligation

There are also plans that, in response to ESMA's proposal, the European Commission will in special circumstances have the option to temporarily suspend the clearing obligation for individual derivatives. This would make it possible to respond with greater flexibility to changes in the general conditions in the derivatives business or even to crisis situations.

The European Commission's proposals are now being discussed with the European Parliament. Once agreement has been reached, the amended regulations are expected to be adopted in the course of 2018.

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