Featured Product

    EC Amends Regulations on Clearing Obligation for Derivative Contracts

    March 13, 2019

    EC published the Delegated Regulation (EU) 2019/396 that supplements the European Market Infrastructure Regulation (EMIR) regarding the date at which the clearing obligation takes effect for certain types of contracts. Regulation 2019/396 also amends the Delegated Regulations 2015/2205, 2016/592, and 2016/1178. Regulation 2019/396 shall enter into force on the day following that of its publication in the Official Journal of the European Union.

    The clearing obligation laid down in EMIR does not take into account the eventuality of a member state withdrawing from EU. The challenges faced by the parties to an over-the-counter (OTC) derivative contract whose counterparties are established in UK are a direct consequence of an event that is beyond their control and may put them at a disadvantage compared to other counterparties in EU. The Commission Delegated Regulations (EU) 2015/2205, (EU) 2016/592, and (EU) 2016/1178 specify the dates from which the clearing obligation is slated to take effect for contracts pertaining to certain classes of OTC derivatives. In addition, these delegated regulations provide for different dates, depending on the category of counterparty to those contracts.

    Counterparties cannot foresee what the status of a counterparty established in the UK might become or to what extent that counterparty would be able to continue providing certain services to the counterparties established in EU. To address such a situation, counterparties may want to novate the contract by replacing the counterparty established in UK with a counterparty in a member state. If, due to Brexit, the parties decide to replace a counterparty established in UK with a new counterparty established in EU, the novation of the contracts will trigger the clearing obligation if such novation occurs on or after the date from which the clearing obligation takes effect for that type of contract. As a result, the parties will have to clear that contract in an authorized or recognized central counterparty (CCP).

    To ensure smooth functioning of the market and a level playing field between the counterparties established in EU, counterparties should be able to replace the counterparties established in UK with the counterparties established in a member state without triggering the clearing obligation. To allow for sufficient time to replace such counterparties, the date from which the clearing obligation takes effect for the novation of those contracts should be 12 months after the date of application of Regulation (EU) 2019/396. The Delegated Regulations (EU) 2015/2205, (EU) 2016/592, and (EU) 2016/1178 have been amended as follows:

    • A paragraph has been added in Article 3 of Regulations (EU) 2015/2205, (EU) 2016/592, and (EU) 2016/1178
    • Paragraph 3 in Article 4 of Regulations (EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178 has been replaced

    Regulation (EU) 2019/396 shall apply from the date following that on which the Treaties cease to apply to and in UK, pursuant to Article 50(3) of the Treaty on EU. However, this Regulation shall not apply in case a withdrawal agreement concluded with UK has entered into force by that date, or a decision has been taken to extend the two-year period referred to in Article 50(3) of the Treaty on EU.

     

    Related Links 

    Effective Date: March 14, 2019

    Keywords: Europe, EU, UK, Banking, Securities, EMIR, Clearing Obligation, OTC Derivatives, CCP, Brexit, Regulation 2019/396, EC


    Featured Experts
    Related Articles
    News

    MAS Concludes Blockchain Payments Prototype Shows Commercial Potential

    MAS and Temasek jointly released a report to mark the successful conclusion of the fifth and final phase of Project Ubin, which focused on building a blockchain-based multi-currency payments network prototype.

    July 13, 2020 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10

    EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.

    July 10, 2020 WebPage Regulatory News
    News

    APRA Updates Reporting Validation Rules in July 2020

    APRA updated the lists of the Direct to APRA (D2A) validation rules for authorized deposit-taking institutions, insurers, and superannuation entities.

    July 10, 2020 WebPage Regulatory News
    News

    PRA to Partly Apply EBA Guidelines on Disclosures for COVID Measures

    PRA updated the statement that provides guidance to regulated firms on implementation of the EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.

    July 10, 2020 WebPage Regulatory News
    News

    EBA Updates List of Correlated Currencies Under CRR

    EBA updated the 2019 list of closely correlated currencies that was originally published in December 2013.

    July 10, 2020 WebPage Regulatory News
    News

    FASB Proposes to Delay Implementation of Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).

    July 09, 2020 WebPage Regulatory News
    News

    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS and FSB Set Out Recommendations for Benchmark Transition

    BCBS and FSB published a report on supervisory issues associated with benchmark transition.

    July 09, 2020 WebPage Regulatory News
    News

    IAIS Sets Out Recommendations for Benchmark Transition for Insurers

    IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.

    July 09, 2020 WebPage Regulatory News
    News

    ESMA Updates Reporting Manual on European Single Electronic Format

    ESMA updated the reporting manual on the European Single Electronic Format (ESEF).

    July 09, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5469